Rebuilding Credit Score After Bankruptcy

best way to improve credit after bankruptcy

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Bankruptcy is typically the last resort for consumers who struggle with mounting debt. In the US, debt continues to be an increasingly significant issue.

In fact, the total household debt across the nation increased to $12.96 trillion by the third quarter of 2017, according to the Federal Reserve. The average household carries a whopping $137,063 in debt, compared to a median household income of $59,039.

With numbers like these, it’s no wonder that many consumers find it incredibly difficult to manage their debt load and keep up with their payments. And the higher the debt load, the higher the odds of defaulting on loans.

That’s where bankruptcy comes into the picture. This process can help consumers finally be rid of the crippling debt that they’ve been unable to pay down and can help end all those bothersome collection calls and threats of litigation.

But as helpful as bankruptcy can be in alleviating debt, it can wreak havoc on a person’s credit score. In fact, bankruptcy can remain on your credit report for as long as 10 years. During this time, your credit score will be affected, and you’ll have a tougher time securing a loan.

The good news is that it’s certainly possible to start rebuilding your credit after filing for bankruptcy. In fact, bankruptcy can help provide you with a clean slate upon which to rebuild your credit. After all, you’ll be debt-free and will no longer have to worry about where to find the money to make timely debt payments every month. Instead, your focus will be on taking the right steps and developing healthy financial habits that can help you build your credit score after bankruptcy.

The question is, what can you do to rebuild your credit after bankruptcy?

There are several steps you can take, but perhaps one of the most effective ways is by taking out a credit card. Yes, it’s definitely possible to get approved for a credit card after bankruptcy. The key is to look for the right credit cards that are designed to help consumers build back their credit.

Credit Cards After Bankruptcy

Why apply for a credit card after bankruptcy? Because taking out a credit card can give you the foundation upon which to build up your credit score again. By making responsible purchases and diligently making timely payments in each billing cycle, you can improve your score over time.

Your credit score is impacted by a few different components, but the ones that bear the most weight are your payment history and amounts owed. If your credit report shows that you have a history of making timely payments and have little or no late or missed payments, your credit score will be positively affected. Similarly, your score will benefit if the amount you owe on your accounts is relatively low.

Once you are approved for any one of the many bankruptcy credit cards out there, you will want to ensure that you use your card responsibly. Keep your credit card balances at no more than 30% of your credit limit, and be sure that timely payments are made every month.

What Are the Best Credit Cards After Bankruptcy?

Bankruptcy will make it tougher to get approved for a credit card, but it’s not impossible. That said, different lenders have their own policies when it comes to who is eligible for credit card approval. They look at several factors, including income and the time elapsed since bankruptcy discharge.

After bankruptcy, your best bet is to apply for a secured credit card versus an unsecured one. The difference between the two is that a secured card requires a deposit upfront before you can start spending, which typically serves as your credit limit.

Credit cards after bankruptcy
Prepaid credit cards are easy to get approved for and offer a practical means of building back credit.

Traditional credit cards are unsecured which means no collateral is required. These typically come with more stringent eligibility requirements. With secured cards, your deposit serves as collateral. Once you’ve made your deposit, the payment has technically already been made. After you’ve managed to make timely payments for a certain amount of time on your secured card, you may be in a better position to be approved for a non-secured credit card.

Here are some of the best credit cards after bankruptcy to consider:

Capital One Secured Mastercard

Among all the bankruptcy credit cards, the Capital One Secured Mastercard is one of the best simply because there is no annual fee required. You have the choice of making an initial deposit of either $49, $99, or $200 to get an initial credit limit of anywhere between $200 and $3,000.

If you deposit more money before the account is opened, you can get a higher credit line. The standard interest rate for purchases is 24.9% APR.

OpenSky Secured Visa Credit Card

Your credit won’t be checked when you apply for the OpenSky Secured Visa Credit Card, making it easy to get approved for. Since it’s a secured card, you’ll need to pay a refundable deposit upfront which you can choose yourself from as little as $200. This credit card is designed to help consumers rebuild their credit, whether they’ve filed for bankruptcy or other debt settlement process.

Not only is there no credit check required, there’s no bank account required either. You will, however, be responsible for paying a $35 annual fee, as well as a variable APR of 18.64%.

Wells Fargo Secured Visa Credit Card

Another great card for building credit, the Wells Fargo Secured Visa Credit Card requires a deposit (at least $300 for this particular card) which becomes the credit limit. Cardholders will have the benefit of car rental collision damage insurance, roadside assistance, and cell phone protection up to $600 if the service is charged to the card.

There’s a $25 annual fee for this credit card and an APR rate of 20.24%.

USAA Secured Card Platinum Visa

Cardholders of the USAA Secured Card Platinum Visa can set their own credit limit by choosing a deposit of anywhere between $250 to $5,000. Like the Wells Fargo Secured Visa Credit Card, the USAA Secured Card Platinum Visa offers collision damage coverage for most rental cars.

The variable APR rate ranges from 11.15% to 21.15% with an annual fee of $35.

Prepaid Credit Cards

Alternatively, you may want to consider getting yourself a prepaid card in order to start rebuilding your credit, even if you haven’t been discharged from bankruptcy just yet. Prepaid credit cards serve as alternatives to traditional credit cards.

Rather than taking money out on credit, you are only permitted to spend the money you put into your card. The biggest difference between prepaid cards and traditional credit cards is that the former requires you to pay before you spend, while the latter allows you to pay later.

Similar to a debit card, the money you spend already needs to be in your credit account. You load your card with a certain amount of funds first, after which you can spend up to that amount.

Prepaid credit cards are reloadable, which means you can repeatedly reload your card to replenish whatever funds you’ve spent. You can then continue to make purchases using your card up to your limit. Some cards allow you to link your prepaid card account to your checking account to make loading your card more convenient.

You will likely have to pay a fee for card activation, as well as an ongoing monthly fee. Some prepaid cards might also charge a fee when used at an ATM machine.

What Other Ways Can You Boost Credit After Bankruptcy?

Applying for credit cards after bankruptcy is certainly an extremely effective way to start building back your credit score. But there are other steps you can take to boost that crucial number:

Live within your means – Come up with a realistic budget and be sure to stick to it. Crunch the numbers and don’t spend any more than what your budget allows. And don’t forget to include a bit of a financial cushion to accommodate surprise expenses.

Avoid NSF and overdraft fees – Closely monitor your bank accounts so you always know how much is in them. That will help you avoid writing any checks that your bank account can’t accommodate or any overdraft fees that your financial institution may charge.

Don’t apply for loans too often – If you apply for too many loans within a short period of time, you won’t be doing your credit score any service. Each time you apply for a loan, your credit report could incur a “hard inquiry” when a lender reviews your credit after you’ve applied for credit. Be sure to wait a minimum of 6 months to one year between credit applications.

Apply for a cell phone – Having a cell phone contract whereby you are responsible for making regular payments is another great way to show future lenders that you are able to make good on your debt. Every time you make a timely cell phone bill payment, that will be reported to the credit bureaus. Just make sure you’re financially capable of paying these bills before you take out a contract, if approved.

Final Thoughts

Bouncing back from bankruptcy is never easy, but it shouldn’t mark the end of your financial health. With the appropriate steps and the right tools – such as bankruptcy credit cards – you can rebuild your credit and get back on the path of financial strength.

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