Best Unsecured Credit Card After Bankruptcy?
Q: How soon can you get an unsecured credit card after bankruptcy? I’m a few months out and want to rebuild my credit and get one that’s unsecured as soon as possible.
A: Getting unsecured after a bankruptcy is definitely an uphill battle, but it’s not impossible. Before I talk about the best technique, there are a few things you want to keep in mind:
- Stay away from creditors that were part of your bankruptcy
Example: If a Bank of America credit card was part of your chapter 7 or chapter 13 bankruptcy filing and they lost out on thousands of dollars, the last thing you want to do is hit them up for an unsecured credit card afterward (or at least not for quite a while). As a general rule of thumb, when you’re in the early stages of rebuilding your credit, it’s probably best to stick with banks that were not burned in your bankruptcy filing.
- Be realistic with your expectations in today’s credit environment
Yes, it’s been a while since “the great recession” but that doesn’t mean banks went back to doing business like they used to (giving credit to anyone with a pulse). Creditworthiness has to be proven now more than ever. An unsecured credit card after bankruptcy discharge probably won’t happen immediately. You’ll likely have to start with a secured card for at least a little while, but some are a lot better than others (which we’ll discuss in a moment).
- Don’t use a high percentage of your credit limit
Whether you end up getting a secured or unsecured credit card, it’s very important that you don’t use a high percentage of your credit limit. Why? Because a small part of your FICO score is the credit utilization ratio (what percentage of your credit limits you use). Most people wrongly assume that the more they spend, the better… that’s not how it works.No one knows the magic ratio since that information is FICO’s secret, but the consensus is that using more than 10% to 30% of your credit limit at any given time will negatively impact your score. So spending above 30% of your credit limit should be avoided. Keep in mind that even if you pay your balance in full every single month, the amount reported to the credit bureaus is the balance listed when your billing cycle closes (before your payment is made).
How to get an unsecured credit card?
As mentioned, getting one right after bankruptcy probably won’t happen. You will probably have to start out with a secured card and then transition to an unsecured card.
Fortunately, there is a single form you can use to see what you pre-qualify, both secured and unsecured credit cards. It’s from Orchard Bank. We advertise many different credit card companies, but Orchard Bank is our favorite for this purpose, here’s why…
They offer four different cards specifically tailored to those rebuilding credit – Secured, Standard, Gold, and Platinum. You can quickly check to see which ones you pre-qualify for. If it’s an unsecured card… great! If it’s a secured card… don’t worry! Use your secured card for a little while and then check in with them to see if you’re eligible for upgrading to unsecured. The great part is they issue both and from the very beginning you’ll have the chance to build a positive track record with an account that reports to all 3 credit bureaus.
Will applying for an Orchard park credit card lower my fico score? I’ve heard that bank inquires sometimes have a negative effect on your score.
The nice thing about Orchard Bank is that when you check your pre-qualification, only a soft credit check is done (which doesn’t affect your score). After that if you choose to apply for an offer you are pre-qualified for, there may or may not be a hard pull- I’ve heard both scenarios.
Either way, a hard credit inquiry will probably have little to not effect on someone with a low score. It’s those with average to excellent credit that will feel the ding more.