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You can apply for a credit card after your bankruptcy has been completed, or discharged, but you'll likely only be approved for a couple types of cards. These include secured cards that require a refundable deposit and subprime cards designed for people with bad credit.
After bankruptcy, you'll probably have to pay higher interest rates and other fees for an unsecured card, if you qualify at all with a recent bankruptcy on your credit history. If you have a Chapter 7 bankruptcy, it will normally be discharged around three months after it's filed. But with a Chapter 13 bankruptcy, you're responsible for paying back a portion of the debt that you owe, which can take several years to be completed.
How Bankruptcy Affects Credit
Filing for bankruptcy has a severely negative effect on your credit, and one that will last for years. That's because your creditors will never receive all of the money you owed them, and may receive none at all. Simply put, having a bankruptcy in your credit history makes it much harder for lenders to agree to offer you a new loan. And when you are able to open a new credit card account, you can expect to pay higher interest rates and fees than those who don't have a bankruptcy in their credit history.
With a chapter 7 bankruptcy, all of your debts are eliminated, but the record of your filing stays on your credit report for up to 10 years. With a chapter 13 bankruptcy, your debts will be restructured, and you will pay off a portion of them within three to five years. This type of bankruptcy is less harmful to your credit, and it can remain on your credit report for up to seven years.
Thankfully, the credit scoring models favor new information over old information, so you can improve your credit scores by managing new credit responsibly after bankruptcy. For more information, read "What to Know About Filing Bankruptcy."
Getting a Credit Card After Bankruptcy
Your first step to getting a credit card after bankruptcy is checking your credit report and credit score so you know where your credit stands when you're researching various cards' requirements. You probably won't like what you see, but don't give up hope. By paying your bills on time and carrying little, if any, debt, you may find that your credit score rises significantly within a year of having your bankruptcy discharged. For more information, see "How to Build Credit After a Bankruptcy."
When looking for the right credit card, your best bet will likely be secured credit cards. These cards work just like standard unsecured credit cards, except they require the payment of a refundable security deposit to open your account. That deposit is also your credit limit, providing your card issuer collateral in case you stop making payments.
Once you receive your secured card, it will work just like any other credit card. You will have to make a monthly payment, and if you don't pay your balance in full, you'll incur interest charges. The advantage of a secured card is that it usually has lower interest rates and fees than unsecured cards made for people with bad credit.
Using Credit Cards Wisely After Bankruptcy
Filing for bankruptcy is a way to receive a fresh start with your personal finances, and you'll want to seize this opportunity by managing your credit accounts responsibly. For example, keep your purchases small and make sure that you incur little, if any, new debt. Ideally, you should avoid both debt and interest charges by paying your balances in full every month.
Most important, you need to make every effort to pay all your credit card bills on time. Payment history is the most heavily weighted factor making up your credit scores, so a history of on-time payments will likely boost your scores, while late and missed payments will seriously ding them. Thankfully, nearly all credit card issuers offer tools to help you make your payments on time, such as email and text alerts, as well as the ability to schedule automatic payments every month.
Continue to Rebuild Your Credit
Once you've exited bankruptcy and opened a new credit account that you manage responsibly, there are still other steps you can take to help rebuild your credit:
Become an authorized user: If you have a relative or friend with excellent credit who is willing to share it, you can become an authorized user on their credit card. As long as the primary account holder is paying bills on time and carrying very little debt, becoming an authorized user can improve your credit scores. That's because when someone adds you as an authorized user to their credit card, a new account will appear on your credit report, instantly adding to your credit history. Just make sure you're asking the right person: If the primary user has a record of late payments or a large amount of debt, that could hurt your credit scores.
Consider a credit-builder loan: These are small personal loans offered to help people improve their credit. Banks set aside the amount you want to borrow, which you make payments toward until the total is paid. As you pay off the loan, your record of on-time payments is reported to the three major consumer credit bureaus (Experian, TransUnion and Equifax), helping your credit scores. After the loan is paid off, you're free to withdraw your security deposit and close the account. For more information, see "How Do I Get a Credit-Builder Loan?"
Finally, continue to monitor your credit history and credit scores. Regularly checking your credit as it improves can help motivate you to continue managing your finances responsibly. In addition, it can also alert you to early signs of fraud and identity theft.
Bankruptcy is a major financial decision with consequences that will follow you for many years, but it's not the end of the world. Once your bankruptcy is discharged, you can apply for new credit cards and begin rebuilding your credit. By understanding how to qualify for a new credit card after bankruptcy, and other ways to rebuild your credit, you can land back on your feet even sooner than you might think.