While filing for bankruptcy can discharge your debt burden or provide you with a more manageable repayment plan allowing you to start fresh, it can have serious negative effects on your credit score. The better your credit, the worse the damage could be, according to myFICO:
“Someone that had spotless credit and a very high FICO score could expect a huge drop in their score. On the other hand, someone with many negative items already listed on their credit report might only see a modest drop in their score.”
Understandably, some lenders are hesitant to approve borrowers who have filed for bankruptcy in the past. And it can take 7 to 10 years for that bad mark to disappear from your credit history.
But there is life after bankruptcy, even if your credit score has suffered.
In this post, we’ll explain a few options you have if you filed for bankruptcy but still want to get approved for a new credit card.
Set realistic expectations
When you’re ready to take on new credit after a bankruptcy, your credit score will be more fragile than ever. It’s not exactly the best time to apply for a bunch of different cards and hit your credit file with a bunch of hard inquiries.
The good news is that you can do your homework ahead of time and avoid applying for cards that are bound to deny you. All credit card issuers have their own policies and protocol they follow when it comes to considering applicants who have filed for bankruptcy in the past.
Some banks and credit card issuers clearly state on their website that they will not approve applicants who filed for bankruptcy and have not yet received a formal discharge, meaning it is still unresolved or not finalized.
In other cases, you can tell you probably won’t qualify if the credit card details state that you need excellent credit to qualify. A bankruptcy will bring your credit score down or you may have even had low credit before you filed if you were missing payments and struggling to pay your debt off for some time beforehand.
Therefore, it’s clear that you won’t qualify for credit cards that offer low interest rates and competitive rewards.
Make sure your delinquent accounts are scrubbed from your credit report
One of the first things you want to do before you consider applying for a credit card is to check your credit report with all three credit bureaus. You should do this to make sure your delinquent accounts are discharged from the bankruptcy as well as to clear up any inaccuracies.
If you still have delinquent accounts open, there’s a slim chance you’ll qualify for a new credit card since your score will just continue to go down. Once your bankruptcy is finalized, you’ll have a chance to start rebuilding your credit.
You can get a free copy of your full credit report annually at AnnualCreditReport.com.
Rebuild your credit with a secured card
If you’ve recently filed for bankruptcy and you’re not even close to the 7- or 10-year mark, you may want to consider trying a secured credit card instead of an unsecured credit card. A secured credit card works just like a traditional unsecured credit card only you need to put down a cash collateral deposit that becomes your credit limit.
Secured credit cards are a great option if you need to rebuild bad credit, and if you use your card wisely, you can establish some positive credit history post-bankruptcy, which will help you qualify for unsecured cards in the future.
With secured credit cards and other credit cards for those with bad credit, you’ll want to watch out for the fees, which are likely to be higher.
Below are some options to consider for secured credit cards post-bankruptcy.
Recommended Secured Cards
Capital One Secured MasterCard
This card is for people with limited or bad credit. It has no annual fee and a variable interest rate of 24.99%. There is a required security deposit of $49, $99, or $200 depending on your creditworthiness, and you’ll receive an initial credit limit of $200.
After five months of making your monthly payments on time, you’ll have access to a higher credit line without having to put up another deposit. Card users will also be able to have unlimited access to their credit score and tools to help monitor their credit with Capital One’s free CreditWise service.
First Progress Platinum Secured MasterCard
The First Progress Platinum secured card is for people with bad or no credit. This card has an annual fee of $44 and a variable 11.99% APR. You must deposit at least $200, but you can deposit at much as $2,000 and your cash deposit will determine your starting credit limit.
The minimum interest charge for this card is $1.50, and there’s a late payment fee of up to $38 if you fail to make at least your minimum monthly payment on time.
Discover it® Secured Card – No Annual Fee
The Discover it® Secured Card has no annual fee, has a variable 23.99% APR, and requires only a minimum security deposit of $200. You can also still qualify for this card if you’ve filed for Chapter 7 bankruptcy in the past.
Discover also mentions on their website that this card is geared toward people who are new to credit or looking to rebuild their credit. They determine eligibility based on the information you provide on the application, your credit report, and other information they may have about your creditworthiness.
If you don’t happen to be approved, they provide you with the score they obtained, which credit reporting agency it was obtained from, and the reasons why they couldn’t approve your application.
This card allows you to earn 2% at restaurants and gas stations (up to $1,000 of spending each quarter) and unlimited 1% on everything else. Discover also matches the cash back you earn during the first year only. You can redeem rewards at any time.
In addition, cardholders receive their free FICO score and can qualify for a higher credit limit after seven months. Most secured credit cards don’t offer rewards, but this one does.
While at first it may be more difficult to get a new credit card after filing for bankruptcy, it’s not impossible.
Before anything, you need to make sure you’re ready to use a new credit card properly. Make sure your finances are in order and you have a handle on any existing debt you owe especially if you have a payment plan set up as a result of filing for Chapter 13 bankruptcy.
Also, make sure you can control your spending and can afford to make credit card payments each month. Then, check your full report and start by comparing options for secured credit cards that will allow you to rebuild your credit.
Watch out for fees like monthly maintenance fees, annual fees, and high interest rates to make sure you’re not losing any money as well.