Q: We got out of our bankruptcy this year and would like to start ASAP on rebuilding our credit. What types of credit cards will we qualify for and which is the best?
A: Often times I hear from people whom are post-bankruptcy that are still stuck dwelling on the past, however you are focusing on the future instead. I applaud you for that. Although a bankruptcy can stay on the credit report for up to ten years, its effect on your credit score can start to diminish relatively quickly if you make the right moves.
Getting a card post bankruptcy is easier than you may think!
Some people assume it must be extremely difficult to get approved for a credit card but nothing could be further from the truth. Sure, you won’t be qualifying for a unsecured card right off the bat, but it is possible to get a secured credit card following bankruptcy that you can use to build credit.
For post bankruptcy, I recommend credit cards that meet the following criteria…
- Secured with adjustable limit – In a nutshell, you deposit an amount with the card issuer and you are allowed to charge up to that amount. For example, if you put down $700 as your deposit, your spending limit would be $700. This deposit is fully refundable when you close the account down the road (assuming you’re paid up on fees, etc). If you can’t afford to start out with a high limit right away, you can always increase it periodically as you can afford to do so – that way you can have a nicer looking limit show up on your credit report.
- Reports to the credit bureaus – Of course the whole point of post bankruptcy credit cards is to rebuild your credit, so make sure the one you choose reports to the three major bureaus; Experian, TransUnion, and Equifax.
- Won’t cost an arm and a leg – Unfortunately, fees are the norm when it comes to these types of cards, but just make sure they are least somewhat reasonable. For example, I don’t think it’s fair to charge an application fee. Inevitably though, you can expect to be charged a monthly or yearly fee, possibly a setup fee, etc.
After you have had your secured credit card for 12 to 24 months, often times you will be able to qualify for some type of entry level unsecured card. Once this is done, if you wish you can cancel your secured version.
What is the best card?
One of our sponsors, Capital One, has the best bankruptcy-friendly credit card based on consumer feedback we have gathered: Capital One® Secured MasterCard®
Some general advice…
Regardless of which bank you choose, make sure it’s a large financial institution. Don’t choose some fly-by-night bank. When you’re rebuilding your credit post-bankruptcy I think it’s very important to go with trustworthy companies that you know will (a) report to the credit bureaus, and (b) won’t be here today and gone tomorrow.
One last piece of advice is about credit scoring. Many people assume the more of their credit limit they use, the better. This is a big mistake. Part of your credit score is based on something known as the credit utilization rate (that is the amount of your credit line that you actively use). Using too much of your limit can actually drag down your score – it makes you look like a higher risk since you are using too much of your available credit. Ideally, many experts recommend never exceeding 30% of your spending limit on a card. It’s important for everyone to remember this but especially those in post-bankruptcy. To learn more about rebuilding credit go here.