While bankruptcy can be a life raft for when your finances hit rock bottom, it represents a hit as bad as any that your credit score can receive. When you apply for bankruptcy, there is a record that goes into your credit report and can result in a bad credit rating for a long time. Chapter 7 bankruptcy stays on your record for 10 years while chapter 13 bankruptcy is kept on your record between three and five years. For this reason, it is considerably hard to acquire credit after going through bankruptcy.
As we will see in this piece however, the situation is not entirely hopeless and you are able to get friendly credit card deals through a variety of means.
Review your credit rating
Immediately after resolving your bankruptcy situation, your credit rating will likely tank but it should begin rebounding soon after. At this point, your mind should be set on rebuilding your credit rating. Although it will be hard to look at, it is advisable to get a free copy of your credit report from different credit bureaus. This will help you understand where you stand as a borrower and how you can increase your creditworthiness. It is important to make sure that the credit report is updated to reflect all your debt repayments as uncredited repayments may may be bogging down your score.
Weigh all your options
Understandably, most of the conventional credit options will be out of your reach immediately after bankruptcy. However, there are a number of other options that can come to your rescue early on. When looking for a credit card, it is important to cast your net wide. Do extensive research on different types of credit card issuers as you might just find a deal that is suitable for your specific scenario. Check your mail for offers from different lenders and try doing some background research on each one of them.
A secured credit card requires you to make a deposit that then opens a line of credit equal to the amount that you are looking for. For example, a $1000 deposit gives you a credit line of $1000. The deposit helps to protect the issuer of the credit card from borrowers with a high chance of defaulting. Even with financial backing and assets, it may still be difficult to acquire a secured credit card from conventional financial institutions like banks. You might be able to go around this problem by approaching credit unions as they tend to have lower thresholds targeted at people with poor credit.
Becoming an authorised user, an option that allows you to co-sign on to another person’s credit card, could also provide some reprieve. This way, you can share credit with someone who has a better credit rating. One caveat with this option is that if the other person defaults on their side of the credit repayment, that record will be reflected in your report as well.
Exercise Patience and Caution
Your long-term goal is to spruce up your credit rating and this takes time. After going through bankruptcy, it is time to kick in some prudent spending habits in order to help your credit rating up. The credit channels that remain after bankruptcy are generally high risk options that could land you into even more financial mire if poorly managed. If your bankruptcy resulted from frivolous spending, then you are in even more danger of sinking yourself deeper into financial problems. Cutting back on your expenditure through things like cancelling cable, moving to a smaller house and getting a fuel efficient car can go a long way in stabilising your financial situation.
In rebuilding your credit, you should only use your credit on merited expenditure such as emergencies and absolute necessities that cannot be financed any other way. Make sure that the credit options extended to you are serviced on time and that they are only used when needed. For chapter 13 bankruptcy, you will most likely have a lot of residual debt repayments that you will have to keep making. Without a gainful income source, you are likely to struggle to meet these and service your household needs. It may be time to consider an extra job as the added revenue streams will go towards increasing your credit rating.
References:
1. https://www.huffpost.com/entry/applying-for-a-credit-car_b_9575904
2. https://www.nerdwallet.com/blog/credit-cards/applying-for-a-credit-card-after-bankruptcy/
3. https://www.experian.com/blogs/ask-experian/can-i-get-a-credit-card-after-bankruptcy/
4. https://www.igrad.com/articles/4-tips-for-getting-a-credit-card-after-bankruptcy
5. https://creditcards.usnews.com/articles/how-to-get-a-credit-card-after-bankruptcy
6. https://www.thebalance.com/getting-a-credit-card-after-bankruptcy-4063852
