Q: I just emerged from bankruptcy last September. What is the best credit card after you have a BK on file at the credit bureau?
A: Thanks for your email Mike. After what many people faced several years ago with the financial crisis bankruptcy has been almost inevitable for quite a few people in America who got upside down in mortgages and/or overextended with credit cards. Whether it’s due to a job loss or catastrophic medical bills, it’s a very real scenario that most of us are susceptible to. So please don’t beat yourself up over it, because the odds are you were not at fault. So instead of dwelling on the past, try and focus on making a better future. I’ve updated this advice for 2016…
The Best Credit Card After Bankruptcy Currently Available
This card from our sponsors has a good reputation as far as secured cards go. Since it is a secured account (secured by a deposit) it is easier to gain approval vs. an unsecured card. Give the application a shot, it only takes a minute to complete.
I also recommend that you try out this free card finder tool from Capital One. It allows you to quickly determine which card offer(s) you may be eligible for without affecting your credit score, which can save you time and avoid the possible negative credit score hit from a hard pull of your credit report:
So, is there such thing as a best credit card after bankruptcy? Well even during times of a booming economy, lenders tend to be quite hesitant to do business with someone that has had a bankruptcy in the past seven years (the old saying, once bitten twice shy applies). In fact, some lenders like American Express are rumored to actually blacklist applicants altogether if their current credit report still shows a bankruptcy on it (however the statute of limitations kicks in and a bankruptcy is no longer being reported, it may be possible to apply and they would be none the wiser).
Regardless, it’s an uphill battle during good times and an even greater battle during bad times. At least the economy seems to be going strong now and things are looking up. So, the good news is that there are second chances – credit cards after bankruptcy are possible if you play your cards right, literally 😉
Secured vs. Unsecured
A secured credit card involves putting up collateral (typically cash you put on deposit with the issuer) and you can then borrow against that amount. For example, you would deposit $500 with the card company and that would allow you to charge up to $500 on the card. Down the road when you are ready to close the account you will get back your full deposit, assuming you don’t have a balance. This process provides a convenient end run around the risk potential posed by those with bankruptcies in their past since it is a risk-free proposition for the lender.
An unsecured credit card is what we typically think of as a normal credit card – something that allows you to make charges without any collateral/deposit. As you can imagine, almost any unsecured credit card application you fill out after a bankruptcy will almost certainly be declined. So that means the best credit card after bankruptcy will most likely be some sort of secured credit card… simply because that’s about the only thing you will be able to get approved for at first, regardless of whether you had a chapter 7, chapter 11, or chapter 13 bankruptcy.
Tips For Secured Credit Card Application
There are a number of dodgy companies out there that attempt to take advantage of people when they’re applying for credit cards after bankruptcy. So here are a couple tips to follow to make sure you don’t get ripped off:
Reasonable Fees & Rates: Because they know you have few options, some issuers will try and price gouge you with outrageously high fees that will cost you hundreds per year. Play close attention to the application fees, annual fees, and interest rates. Ideally, you want them as low as possible. In my opinion, a reasonable amount for your monthly and/or annual fees should be $30 to $60 over the course of your first year.
Credit Bureau Reporting: Did you know that all banks/lenders have to actually pay to report a customer’s credit history to the bureaus? Because of this, some unscrupulous secured credit cards will try and save a few bucks by not even reporting their customers to the three major credit bureaus… essentially making their cards useless as far as credit building goes! So, be sure when you apply for secured credit card that it actually will be reporting your account activity to the three credit bureaus. There should be explicit wording to that effect in their terms and conditions (in fine print, of course)
This post was written or last updated April 5, 2016