You usually need good credit to be given more, so people with newly discharged bankruptcies often have fewer options when it comes to being approved for new credit cards. This Catch-22 can make it difficult to re-establish your positive credit history and move on from the bankruptcy. Worse, it can tempt you to jump at credit offers that may be detrimental to your financial goals.
Fortunately, legitimate credit card options are available for people who have recently filed for bankruptcy, and these can help you rebuild.
Secured credit cards are one of the best ways to re-establish good credit and financial habits. They are not credit based, but often they report to credit reporting agencies just the same. Companies such as Capital One, as well as many banks and credit unions, offer credit limits of $200 to $10,000, equal to the amount of cash you put up as collateral. You will not have access to these funds at first, but the lender may gradually release portions as you make timely payments and use the card responsibly. Customers are often offered unsecured credit after about a year of positive history; some graduate automatically to an unsecured account.
Retail and Gas Cards
Some retail stores and gasoline companies extend credit to customers that can only be used at that merchant. These lines of credit are unsecured, but they usually have a small limit. This translates to less stringent credit qualification criteria, as the store assumes little risk in comparison to what it earns for your shopping or gas pumping loyalty. Merchant credit cards often offer rewards such as discounts and cash back, making them good money-saving tools as you rebuild your finances.
Authorized User Accounts
Authorized user accounts allow you to “piggyback” on the payment history of a friend or family member's credit card. Because you're an authorized user, your credit report will reflect the credit history associated with the account, and you will receive all of the benefits of having an account in good standing on your report. Of course, this arrangement works best with long-term cardholders who have excellent payment history.
The original cardholder simply needs to call the credit card company and request to have you added as an authorized user. This doesn’t cost the cardholder any money, does not affect her credit and does not require you to submit to a credit or income check. If the cardholder is worried about you creating additional debt on her account, she doesn't have to give you a card.
What to Avoid
Some types of cards do not help your credit and can actually hinder your efforts to recover from a bankruptcy discharge. First are prepaid debit cards, which do not report to credit reporting agencies. While these cards can be helpful for budgeting after bankruptcy, they are not credit cards and will not help your credit score. Second are the low-limit, unsecured credit cards marketed toward people with poor credit histories. These cards often guarantee approval, but the fees and interest they charge are often exorbitant and take up much of the tiny credit limit. In addition, these creditors may not report your payment history to the credit bureaus, making the cards useless as credit builders.
Try applying for a credit card at a bank or retailer that you already have a relationship with to increase your chance of approval.
Do your due diligence when choosing a credit card to ensure it meets your needs. Look at the interest rate, terms, fees and rewards before choosing a card.