Building your credit after bankruptcy is not impossible. One way to do so is by setting up a credit card account. One can go through a credit card application during a bankruptcy filing. However, given your debts, it would be especially challenging to get credit from card companies. If you are currently filing for bankruptcy but are also applying for a credit card, keep in mind that companies will be extra skeptical as they check your credit profile.
Some are wary about bankruptcies as it can leave people with bad credit. Borrowing, improving your credit score, and establishing credit to a potential lender could be difficult. However, note that improving your credit rating can be done. Furthermore, despite having a low credit score, you may proceed with a credit card application after bankruptcy. There is a way to rebuild your credit after bankruptcy, be approved by credit card companies, and eventually be able to again use credit cards.
The bankruptcy type you filed will determine the best credit card application for you.
When filing a Chapter 7, your assigned bankruptcy trustee will ‘liquidate’ your non-exempt assets and use the proceeds to pay off those in the preferred creditor list. In most liquidation bankruptcies, debts that you do not have to pay back are forgiven or discharged a few months after filing. A Chapter 7 filing will stay on your credit report for ten years.
On the other hand, when filing a Chapter 13 reorganization, you have to repay companies and individuals that you had to borrow money from before bankruptcy. You pay creditors with what you owe following the terms in your repayment plan. You may propose certain one-time or monthly payments that will run for three or five years, depending on your monthly income and other factors. Note that any financial institution that will check your credit report in the next seven years will see your Chapter 13 filing.
It would be hard to improve your credit score right after you have declared bankruptcy. It will take a while before you can borrow with low-interest rates, build credit, or get new credit from other institutions. However, you might be able to get a credit card a lot sooner than you think. In some instances, you may not need to apply for a credit card anymore. You may be surprised with credit card offers sent in your mail.
Normally, a credit card company would not approve the application of a borrower with bad credit history. However, some bank on the fact that an individual cannot file another bankruptcy case in the next few years. Approving the application of a bankrupt individual getting a credit card could be a good financial risk.
From your end, be extra cautious when you do decide to get a credit card while still rebuilding credit and given your credit history. Opt for credit cards with no annual fee or any unnecessary transaction fee and, as much as possible, low interest. Take good care of your payment history and don’t leave your credit card balance unpaid. Maintain good standing by paying your bills on time and spending only when necessary to avoid suffering from high-interest rates. It is advisable to pay your bills in full and to keep your credit utilization under 30%, meaning you need to keep your outstanding debt under $1000 if your total credit limit is $3000. Maxing out your credit line will lower your credit score.
If you compare credit cards offered to people with bad credit and the ones for those with good credit, the former often come with exceptionally higher interest rates. Note that interest rates are not the only factors you should look into.
For questions on your bankruptcy filing and rebuilding credit after bankruptcy, call our law firm. Contact us at E Orum Young.