When Can I Get a Credit Card After Bankruptcy?

There are two primary types of bankruptcy:

• Chapter 7: This will automatically get rid of most of your debt and it’s the fastest way to become debt-free (typically in as little as six months). However, anything you own that isn’t exempt can be sold off to pay what you owe, and it stays on your credit report for 10 years.
• Chapter 13: This filing restructures your debt and requires you to repay it over time, typically three to five years, based on your disposable income and how much debt you owe. Then, the remaining debt is forgiven. This takes longer, but your assets aren’t at risk of being sold and it only remains on your credit report for seven years.

How to get a credit card after bankruptcy?

Getting a credit card after bankruptcy can be challenging, and you may not qualify for a conventional credit card soon after filing. However, applying for a card designed for consumers with poor credit can be a good way to start:

• Check your credit report and credit score. Knowing where you stand can help you with researching your options and knowing what approval requirements you meet. Note that your credit score may be fair or poor depending on whether you have missed payments, maxed out cards, or accounts that have been turned over to collections, even before being impacted by the bankruptcy.
• Compare secured credit cards. These may be your best bet for approval. Secured cards require you to put down a cash deposit, and the deposit amount typically equals the card’s borrowing limit. If you fail to repay your balance as agreed, the card issuer can take your deposit. Otherwise, these cards work just as conventional cards.

The primary benefit to secured cards, other than they are easier to qualify for if you have poor credit, is they typically have lower interest rates and fees than unsecured cards. The biggest disadvantage, though, is that the borrowing limits are low which can restrict the purchases you make on the card.

Remember that when you apply for a credit card, it triggers a hard inquiry on your credit report, which can slightly lower your score. Be selective about which card you apply for and make sure you can get approved before submitting your application.

How bankruptcy affects your credit score?

Each type of bankruptcy affects your credit differently:

• Chapter 7: You’ll have a clean slate, but it can cause severe damage to your credit score and remain on your report for up to 10 years.
• Chapter 13: The effect on your credit score isn’t as severe, but it’s still very damaging and can stay on your report for up to seven years.

Keep in mind that how much your score lowers depends on your starting score. If you file bankruptcy with a high credit score, you’ll lose more points and your score will suffer more damage.

Also know that since lenders only receive a fraction of the money you owe when you file for bankruptcy, it often makes future lenders wary of extending credit to you. Serving as a red flag to lenders, they may deny your credit application, especially if you’ve recently filed.

That said, the impact filing for bankruptcy has on your score decreases over time, especially if you use your credit responsibly and work to build new, positive credit.

Learn more: Bankruptcy and Credit Score

How to build credit after bankruptcy?

1. Check your credit report

Checking your credit score and keeping an eye on it as it improves can be motivating and help you stay on track with managing your finances.

You should also keep an eye out for any errors or suspicious activity on your credit accounts, which could be a sign of fraud or identity theft.

You can check your credit scores for free right here on Credello, and you can also get one free report per year from each of the credit bureaus (Experian, Equifax, TransUnion).

2. Manage your financial habits

Before you can take action to improve your credit and apply for a new credit card, you need to take a good, hard look at why you filed for bankruptcy in the first place. After all, we all have financial habits we can improve. A few tips include:

• Set a budget. This doesn’t have to be complicated, but it’s important to be aware of how much money you have coming in, how much you’re spending on unavoidable expenses like utilities, rent, and groceries, and how much goes to things like dining out, shopping, subscriptions, etc. Determine where you may be able to make cuts to avoid overspending.
• Be smart about your purchases. Only spend what you can afford to repay.
• Build up an emergency fund. Experts recommend having at least six months’ worth of funds in an emergency fund. Should something happen, like a job loss or an unexpected large expense, you have something to fall back on instead of racking up credit card balances or having to take out a loan.

3. Become an authorized user

If you don’t qualify for an unsecured credit card and can’t afford a secured card, you may benefit from becoming an authorized user on a friend’s or family member’s card. The account appears on your credit reports, but the primary cardholder is responsible for making payments to the card issuer. As long as the cardholder has good credit and makes payments on time, your credit score will also benefit.

However, if the cardholder has a record of late payments or a lot of debt, this won’t help your score at all, and becoming an authorized user wouldn’t benefit you.

4. Consider a credit-builder loan

Credit-builder loans are small personal loans, typically offered by credit unions, specifically designed to help those who need to improve their credit. These loans are only a few hundred dollars (up to $1,000). The funds are placed in a special interest-bearing savings account in your name. You typically can’t touch the money until you pay off the loan in full (through regular monthly payments) for no more than 12 months.

Once the loan is paid off (plus interest), the money in the account is yours. The payments will show as positive payment history on your credit report, which can help improve your score.

Related: When does Credit Score Improve After Bankruptcy?

Tips to use a credit card after bankruptcy

Bankruptcy can be a painful process, but it helps you clean up your finances and gives you a chance to improve your credit and credit management. When it comes to using your credit card after bankruptcy:

1. Keep your purchases at a level you can pay off quickly.You should be able to pay off your balance in full each month. This will help you avoid excessive debt.

2. Pay off your balance completely and on time each month. This will help you avoid interest charges and late fees. Additionally, payment history makes up 35% of your FICO score, so steady, on-time payments will help improve your score while late or missed payments can seriously hurt it.

3. Sign up for email and SMS alerts. Most card issuers offer tools like email and SMS alerts. You can be alerted each time you use your credit card, which can help you keep track of your spending and the card’s balance. You can also get notified when your payment is due to avoid missing it.

4. Set up auto-pay. Scheduling automatic payments each month will help ensure you don’t make any late payments, which can hurt your score. Or, set a reminder on your phone, mark your calendar, or otherwise make a note so you don’t forget.

How long after bankruptcy can you get a credit card?

The time it takes to get a credit card after filing can depend on a few factors, such as what type of bankruptcy you filed. You typically can’t apply for new lines of credit, including a credit card, while your bankruptcy proceedings are in progress unless you get court approval. This could range from a few months to up to five years.

Even after your bankruptcy proceedings have been completed, it may be difficult to get a card because of the damage the bankruptcy has on your credit score and the length of time it remains on your credit report. That’s why a secured credit card may be your best (or only) option.

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