Despite your recent bankruptcy, you will probably get many credit card offers in the mail or over the Internet. Most recent bankruptcy filers can get a credit card -- but interest rates and fees are likely to be very high.
Bankruptcy and Your Credit Report
Bankruptcy generally stays on your credit report for ten years. This means that the credit reporting agencies will add a notation to your credit report that you had a bankruptcy, whether it was a Chapter 13 or a Chapter 7. Your individual credit accounts may note that the debt was discharged in bankruptcy, or they may simply say the debt was written off, depending on how the creditor chooses to report it to the agency.
The bankruptcy will initially lower your credit score, but you can improve it over time by using new credit wisely. By obtaining new credit and paying the bill on time every month, you can rebuild your credit long before the 10-year period is over.
Obtaining a Credit Card Post-Bankruptcy
Obtaining a new credit card after a bankruptcy is not difficult; in fact, many people who file bankruptcy are surprised to receive a flood of credit card and loan offers after the bankruptcy court enters the discharge. You can complete one of the offers and obtain a card that way. You can also research credit cards online, or talk to your bank or credit union about your options.
However, be cautious before signing up for a new card. Because of your bankruptcy, credit card issuers are likely to charge very high interest rates or add high fees. (To learn more about choosing a credit card, see our Banking & Credit Cards area.)
Unsecured Credit Cards
Unsecured credit cards are the standard credit cards that most people have. When you use the card to make purchases, you essentially borrow money from the credit card company and pay interest on this amount until you pay it back. Unsecured credit cards are riskier for the credit card company, because if you don't pay, the credit card company can't do much other than sue you for the balance. If you file for bankruptcy, unsecured credit card debts typically are discharged.
After a bankruptcy, you may get many offers to obtain an unsecured credit card. Or you can find one and apply on your own. However, with a bankruptcy on your credit report, your credit will be less than stellar. Because credit card issuers will likely view you as a poor credit risk, they will charge high interest rates to protect themselves financially. This means the cards you qualify for will have high rates, or perhaps a low introductory interest rate that quickly balloons into a rate of 24% or more. They may also have annual fees or monthly charges.
Secured Credit Cards
Secured credit cards are different from unsecured credit cards in that you must deposit money into a savings account in order to use the card. The bank then sets your credit limit at a percentage of your deposit -- as low as 50% to as high as 120%.
These types of cards are less risky for the credit card company and also less risky for the cardholder -- they prevent you from spending more than you can afford. Secured credit cards are often a good option for people who have no credit or who have bad credit; because of the low risk, credit card companies are willing to provide them to high risk borrowers, such as people who have just left bankruptcy. Additionally, secured credit card payments are reported to the credit bureaus, helping the cardholder build credit without putting himself or herself into further debt.
Although secured credit cards are safer to use than unsecured credit cards, you should do research before selecting one. Many banks charge high application and processing fees, and an annual fee.
Using Credit Cards Wisely After Bankruptcy
With any credit card you obtain after bankruptcy, do not spend more than you can afford, and always pay on time to rebuild your credit. (For tips on using credit cards well, see our Banking & Credit Cards area.)