Don’t be overwhelmed by the process. Focus on the good news: you can have good credit after bankruptcy. In fact, you will have excellent credit. Before the bankruptcy mark even falls off your credit report, you should have a 750 credit score. Simply read the dos and don’ts of securing good credit after bankruptcy and move forward inexorably toward your goal. It will require some hard work and that hard work begins the moment the bankruptcy is over, but the results are worth the effort.
The hard work of hitting that 750 credit score goal begins as soon as you receive your official notice of discharge from the bankruptcy court. It usually says something along the lines of “Discharge of Debtor.” Once you receive this document, the quest for good (no, excellent) credit begins because that is the document that future creditors will need to see prior to providing you with new lines of credit (which are necessary in order to rebuild your credit score).
Quick Tip: When attempting to rebuild your credit post-bankruptcy, attempt to determine whether or not you have a chance at approval prior to actually applying. This will minimize the amount of credit inquiries reflecting on your credit score.
Obtaining Credit Immediately After Receiving a Bankruptcy Discharge: Secured v. Unsecured
- Secured Credit Cards: The most frequently utilized form of credit immediately after receiving a discharge of debt through bankruptcy is the secured credit card. This is the easiest way to start to re-establish your credit. Most find it fairly easy to obtain through a local credit union or bank. The “secured” nature of the card means that you, the account holder, provide the bank or financial institution providing the secured line of credit with funds equaling the amount of “credit” they will be offering you. They hold the funds in reserve as “security” on your account. For instance, you give the bank $500 and you receive a credit limit of $500 on the credit card.
When deciding which secured card to use, watch out for outrageous, up-front fees. In some cases, a financial institution may attempt to require a one-time fee of up to $200 or more. If this is the case, look for a different provider.
Verify that the bank or financial institution offering the card will be reporting you usage and payment history to the three major credit bureaus: Experian, Equifax and TransUnion. The entire point is to rebuild your credit history, so if they don’t report, find a different provider.
Before deciding which secured card to use, discuss with the bank or financial institution their policy on credit line increase. Find out specifically, when you could expect an increase on the card’s credit limit. There are two scenarios for this particular situation: you can add more money to the card, which would secure a higher credit limit for you, or you could become eligible for an “unsecured” portion of credit that would increase the overall credit limit on the account without an additional deposit. Some banks offer secured cards up to $10,000. That would mean a deposit of $10,000 to secure the account, but over time you could increase the card limit. Higher limits paired with lower balances are the best scenario when attempting to improve your credit score after bankruptcy.
Quick Tip: When to ask for a credit increase? First, when you’re about to make a purchase that is larger than average and second, during the holiday season. Avoid asking for an increase at checkout, as a rejection can be embarrassing. Instead, call ahead of time to request the increase by phone.
The best secured credit cards to obtain post-bankruptcy are those through financial institutions that are willing to eventually offer you an unsecured credit card. Some institutions will be willing to do so after they see 12-24 months of use and on time payments. Get an idea of the bank’s policy on this matter before you open a secured account with them.
- Unsecured Cards: After you file for bankruptcy, don’t be surprised if you immediately start to receive a lot of credit card offers. Some will be for secured cards, but others will be for unsecured cards. An unsecured card is a credit card that does not require that you provide a deposit prior to receiving access to a line of credit with the financial institution. You want to obtain the highest credit limit available, but avoid upfront fees. Check to see if the lender will be reporting to the three major credit reporting agencies (just as you would for a secured card). It’s good practice to request a credit increase every 12 months as increasing your credit limit is one of the fastest and easiest ways to improve your credit score.
If you have other questions related to bankruptcy or recovering your credit after bankruptcy please get in touch with one of the experienced southern California bankruptcy attorneys at Westgate Law. We would love to assist you as you obtain the financial protection bankruptcy offers and get your financial world back under your own control.