The period of life after a bankruptcy discharge can be both exciting and scary. On the one hand, you have a clean slate, meaning that your old debts are history. On the other hand, you’re essentially at square one for establishing credit and building yourself up financially.
And rebuilding credit after bankruptcy is essential to future financial health. Here’s a look at why credit cards can be key in rebuilding credit and how to get a credit card after bankruptcy.
Overextension on credit is a common factor that leads bankruptcy filers to seek the court’s help. And that leaves many uneasy about opening new credit cards after their bankruptcy is over. But using credit responsibly can greatly improve a person’s financial health:
- Credit score: This number is based on information about a person’s use of credit. Lenders consider credit scores when determining whether to give a person a loan. And most people need loans at some point in their lives, usually to buy a home or car. The better a person’s credit score, the less they’ll pay in interest.
- Emergencies: Another important reason to use credit after bankruptcy is that it allows you flexibility. Having a credit card gives you the peace of mind that using only cash does not. In emergency situations, cash or checks may not work – but a credit card can often save the day.
- Saving: In addition to saving money on interest rates, a credit card allows you to save in other ways. Think, for example, about how much more cheaply many goods can be purchased online than in stores. And on the Internet, plastic is king.
It’s true that in the months right after bankruptcy, you might not qualify for a credit card. But that’s okay. This is about the long term, and patience is essential to strong credit.
- Make payments on time: When you’re paying your utility bills, rent, mortgage or any other expenses you have, be sure to be on time each month. This will help build your credit score so that you look attractive to lenders.
- Shop around: After a few months or years have passed, start researching credit cards. Don’t apply for any until you’ve found one that you think you can qualify for and that offers reasonable terms (i.e. no outlandish fees).
- Check your credit report: As you rebuild, take stock of how you’re doing every few months to get an idea of how lenders will view you.
- Go into the bank: Some financial advisors recommend that those with shaky credit apply for their credit card in person. Speaking with a banker at an institution where you already have one or more accounts might help your case. This person can advise you about what card might work for you. Be sure to present yourself as a responsible person and be ready to talk about your bankruptcy and your improved financial management since that time.
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Tags: Bankruptcy, Bankruptcy Credit
Posted July 2, 2011 by Amelie Hampton under Bankruptcy Articles