Anna Fleet

08/14/2007

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Credit Cards After Bankruptcy

How to Rebuild your Credit Rating After a Bankruptcy Claim.

Did you know that it is possible to get a credit – even if you’ve declared a bankruptcy? I know you’d probably given up on credit as soon as you decided to file for bankruptcy. It’s true that your credit score is blown, but that doesn’t mean that lenders won’t take you on as a customer.

Rebuilding your credit score will take time, but just because you filed for a bankruptcy doesn’t mean you can’t still get a credit card or a loan with decent rates and terms soon after you file. Secure credit cards, the type that act as a safety net for those with credit troubles, are not your only option either. You may actually be able to get your hands on a regular, unsecured credit card.

Sure a bankruptcy leaves a devastating bruise on your credit history, but it’s not permanent. Here are some helpful tips that will have you building up your good credit history after a bankruptcy. Remember, people do make mistakes, creditors understand that, but it will take a certain amount of time and responsible spending habits for them to trust you with credit or loans again.

Helpful tips for rebuilding your credit report after a bankruptcy

Bankruptcy is not forever – Sure a bankruptcy will appear on your credit history for 10 years, but hat doesn’t mean you are cut off from loans or credit cards for an entire decade. Many folks who claim bankruptcy find they are getting credit card applications in the mail the day after their bankruptcy case closes. The only trouble is that they are too afraid to apply for fear of creditors denying their applications. However we warn, if you do decide to get that new unsecured credit card, be sure to have your spending habits under control. The creditors will be watching your payment habits. If you don’t have your credit card behavior in control, you may want to opt for a secure credit card. It works as a safety net and makes you pay off the balance of your debt every month. It’s a great way to train yourself on good credit card behavior. To read more about secure credit cards please read our article entitled What you should know about secure credit cards? The key to rebuilding good credit is to show creditors you can use your credit cards in a responsible way. That means you need a credit card. You may want to apply for a credit card that’s easier to be approved for, say a gas rewards credit card, which let’s you charge gas and gas station items only to your credit card. Gas rewards credit cards typically carry outrageous interest rates with them, but if you’re only using them to charge monthly gas fill-ups, it’s a good start to learning how to charge and pay off a reasonable debt each month. Plus it will show that you are a responsible credit cardholder.

Learn from your bankruptcy – There are two types of bankruptcies that you can file for:

Filing chapter 7 bankruptcies means that you probably have a home or savings that you are trying to maintain during the bankruptcy. A chapter 7 liquidation will absorb all assets except for certain “protected” assets – like your car, your house and your vital savings. It can stay on your credit history for up to 10 years, and 8 years must pass before you file for another bankruptcy. This is the more popular bankruptcy claim because it protects some of your personal assets.

A chapter 13 bankruptcy allows you to keep all of your personal assets when you declare bankruptcy, but garnishes a portion of your wages. It can also be reflected on your credit history for up to 10 years, but you can file again within 2 years of your last bankruptcy case. You must have a job in order to declare chapter 13 bankruptcy.

Whatever you do, if you have declared on bankruptcy, don’t think you can cheat the system by continuing to max out your credit cards, default on your loans and simply declaring bankruptcy to have the debt disappear. You are only hurting yourself and your credit history. People who claim multiple bankruptcies are red flagged by creditors and will have huge interest payments slapped hanging over their heads during the time frame where they can’t declare another bankruptcy (8 years for chapter 7 bankruptcy claims and 2 years for chapter 13 bankruptcy claims). Instead of punishing yourself for a bankruptcy, use it as the time to learn responsible credit behaviors. Then when your time has elapsed, the credit card companies will trust you again, and maybe even give you good interest rates.

Studies show that those who declare bankruptcies are either classic over-spenders or irresponsible budgeters, meaning they don’t pay their credit card bills on time. If you fit into one of these categories, now is the time to clean up your credit card habits and prove to lenders that you can be responsible with credit cards and loans. You need to move from a high risk (irresponsible credit cardholder) to a low risk (responsible credit cardholder) in the eyes of creditors. Here are a few helpful hints to help you achieve low risk credit cardholder status:

• Create a monthly budget and stick to it
  
  
• Don’t live above your means
  
  
• Build up a considerable emergency fund to help you during job loss or when money is tight.
  
  
• Refuse to live paycheck to paycheck – always have extra in savings in case of emergency.
  
  
• If you need prescriptions look for a job that offers medical coverage. You can also apply to the state to see if you are eligible for subsidized medical coverage.
  
  
• Contact the credit companies to ensure any outstanding debts are covered under your bankruptcy claim – as they should be.
  
  
• Request a credit report from a creditor. Oftentimes mistakes made on your credit report, accounts left open when they have been absorbed by your bankruptcy for instance, continue to harm your credit history even though they are mistakes.
  
  
• If you know you are irresponsible with money, get a secure credit card. If you recently declared bankruptcy, you may have trouble qualifying for an unsecured credit card. Secure credit cards give you the privilege of a credit card, but make you deposit the money beforehand as a safety net. They are a great way to teach yourself responsible credit habits.
  
  
• Once you get a credit card, secured or unsecured, the creditors will want to see that you can pay your debts off on time. If you display good credit habits, it will only take a few months before you start getting offers for loans and credit cards with good rates.