Anyone without a credit card should first establish good financial habits and then apply for a secured credit card. For those attempting to re-establish good credit post-bankruptcy, you should plan on doing so approximately 6 months after you receive your discharge.
With a secured credit card, the cardholder puts money into an account and the credit card company then offers you a credit limit equal to the amount deposited. You receive a regular statement as with any revolving credit card account. When you receive your statement, you pay it just as you would a normal credit card. The original deposit “securing” the card stays in the account until you close out the card or it is switched to an unsecured type of account. This could occur after a length of time showing a positive and healthy history of both use and payment (the length of time is at the discretion of the card issuer). In some cases, the card issuer will be more willing to increase your credit limit without demanding an additional deposit instead of altering the terms from secured to unsecured.
Of note for those hoping to rebuild their credit as quickly as possible after bankruptcy is that many secured cards report to the credit bureaus as unsecured cards. This can only help you in reaching your end goal in a timely manner. Assuming you keep your secured credit card in good standing (on time payments and never carrying a balance too close to the limit), you should begin to receive semi-decent offers for unsecured cards within a year of opening and using the secured credit card account.
When searching for the best deal on a secured card, be aware that you aren’t going to get the low rates that were available to you when you enjoyed a “good” credit score. Post-bankruptcy offers will come with additional fees, higher interest rates and greater chances of being approached by credit card scams. To avoid difficulties, look for names that you recognize and avoid any offers that demand money up front. Many will require fees billed to your card or billed directly to you after receipt of your new secured card, but if a card issuer is attempting to obtain money up front, there’s a good chance you’re looking at a scam.
One mistake that many post-bankruptcy borrowers make is jumping the gun. Don’t apply every six months until you get better offers for credit. The inquiries alone will ding your credit even as you are doing your best to rebuild it with on time payments and positive usage of your chosen secured card. Borrowing money is going to cost more for a while after declaring bankruptcy. If you don’t pay your balance off each month, it could cost substantially more. You’re being charged for the privilege of borrowing money when you are considered high risk for non-payment. Expect to see application fees, processing fees, annual fees and APRs in the high teens and even 20’s. But smart spending and excellent payment history will help you win your credit back and with your good credit score returned, you will also see the return of lower rates and cards offered without fees. There is light at the end of the post-bankruptcy tunnel and it’s not as far off as many would have you believe.
For more information on how to rebuild your credit after bankruptcy discharge, contact the West LA bankruptcy attorneys at Westgate Law.