Tips for Getting a Credit Card After Bankruptcy

Filing for bankruptcy can be a difficult decision, but it may be necessary to get your finances back on track. One of the consequences of bankruptcy is that it can make getting approved for new credit very challenging. Your credit scores take a big hit after bankruptcy, which makes lenders hesitant to approve you.

However, there are still options for getting a credit card after bankruptcy. It just may take some time and effort. Here are some tips for improving your chances of getting approved:

Wait until your bankruptcy is fully discharged

You cannot apply for any new credit until your bankruptcy is fully discharged by the courts. This is usually a few months after your initial bankruptcy filing. If you apply for credit before the bankruptcy discharge, you need special approval from the bankruptcy court [2].

Once the bankruptcy is discharged, the accounts included in the bankruptcy will be closed and written off. This is an important milestone in the process.

Know your credit scores

After bankruptcy, your credit scores will be very low. FICO scores range from 300-850. According to Experian, the average FICO score post-bankruptcy is 533 [1]. This is considered “very poor” credit.

Before applying for a new card, check your credit reports and scores so you know where you stand. AnnualCreditReport.com lets you access your reports from Equifax, Experian and TransUnion for free once per year.

Consider a secured credit card

Secured cards require a cash deposit that acts as your credit limit. They are easier to qualify for because the deposit protects the lender if you default. Using a secured card responsibly shows lenders you can handle credit again.

Try to find a secured card that reports to all three credit bureaus. Making on-time payments will start rebuilding your credit history. After about a year of responsible use, you may qualify to upgrade to an unsecured card and get your deposit back.

Look for cards that allow prequalification

Prequalification lets you see if you’re likely to be approved for a card without a hard inquiry on your credit report. This avoids extra damage to your scores from applying for cards randomly.

Many issuers like Capital One and Discover allow prequalification online or through their mobile apps. See if you prequalify for any of their cards for bad credit before formally applying.

Consider becoming an authorized user

Ask a family member or friend with good credit to add you as an authorized user on their credit card. As an authorized user, the card history will be added to your credit reports, helping your scores.

Just be sure they make on-time payments and that the card reports authorized users to the credit bureaus. And remember, you’re responsible if you misuse the card!

Get a credit-builder loan

Credit-builder loans don’t actually give you loan proceeds up front. You make monthly payments, which are held in a savings account. Once paid off, you get the money you “borrowed” back as a lump sum.

On-time payments are reported to the credit bureaus. And you can get the cash back with interest when the loan is paid off. It’s an easy way to demonstrate responsible credit behavior.

Start small and slow

When you do get approved for a card, start small. Use the card lightly and make sure you pay on time and in full each month. Carrying a balance leads to interest charges, which can quickly snowball.

Use the card for regular expenses you can afford, like gas or groceries. As you demonstrate responsible usage, you can request credit line increases over time.

Review credit card terms

Cards marketed to applicants with poor credit often charge high fees and interest rates. Read the fine print before signing up. Make sure you understand the card’s fees, APR, credit limit, and other terms.

A high APR can negate any rewards you might earn if you carry a balance. And with a low credit limit, high utilization can also hurt your scores.

Monitor your credit regularly

Sign up for free credit monitoring services to keep tabs on your reports and scores. Monitoring lets you watch your progress over time. It also alerts you to any suspicious activity like new accounts you didn’t open.

Credit Karma and Experian Boost are two free services that provide basic credit monitoring. For more advanced monitoring, services like IdentityForce and PrivacyGuard provide alerts for suspicious activity.

Avoid too many applications

Each credit card application triggers a hard inquiry on your report. Too many inquiries in a short period can negatively impact your scores. Apply for just one or two cards at a time and space out applications by several months.

Consider credit counseling

Nonprofit credit counseling agencies can help create a personalized plan to rebuild and improve your credit. They offer free budgeting advice and financial education resources. Some even offer credit-builder loans and secured cards.

Reputable agencies are approved by the National Foundation for Credit Counseling. Make sure any agency you consider is accredited.

Rebuilding credit after bankruptcy takes time, but it’s possible. Get your finances in order, make payments on time, keep balances low, and your credit scores will slowly improve. Be patient, and focus on demonstrating responsible usage rather than getting access to more credit.