Is it a good idea to get a credit card after bankruptcy?

On Behalf of | Sep 16, 2020 | Personal Bankruptcy |

There are mixed opinions about whether or not a consumer should get a credit card after the filing of a bankruptcy. A consumer’s credit score is normally very low when a bankruptcy case is filed. The creditors have normally not been paid for several months. After the case is filed, the debtor may only have a car or mortgage reporting on their credit report. It can take years to rebuild credit and get the credit up.

A bankruptcy filing is normally reported on a consumer’s credit report for seven to 10 years. This may limit the filer’s ability to get a credit card. One viable option is a secured credit card where the holder can only spend the amount of money they deposit in the account. It is not necessarily bad because it avoids incurring debt. The spending limits are usually equal to the amount of the deposit and normally low limits. It is harder to get into trouble with a low limit. Those who have filed bankruptcy should avoid unsecured credit cards aimed at consumers with bad credit because these typically have low limits, high interest rates, and high annual fees. There are cards out there that target recent bankruptcy filers so be aware of the terms of the credit card lender.

A smart move

Many financial advisors believe that it is smart for those who filed bankruptcy to get a card. The number one reason for doing this is that it enables the cardholder to rebuild their credit score by paying their credit card bill on time each month.

But before applying for a new card, it is a good idea to do a little soul searching. If the bankruptcy had nothing to do with credit card debt, there is less to be concerned about in getting a new card.

Nonetheless, some may not want to risk the potential damage of paying the bill late. Paying that bill each month may also be a source of stress. Those who position themselves for success in building back their credit can do some additional steps to avoid credit card problems. Essential measures include maintaining a steady job that enables them to pay all their bills and creating an emergency fund to cover the credit card bill if something unexpected comes up. A common drawback to obtaining a credit card is that you will receive multiple offers for multiple credit card accounts and could find yourself back in the same place that you were before the bankruptcy case was filed.

Other options

Here are two other viable alternatives to using a credit card to build up a score:

  • Those who had credit card problems or spending issues before the bankruptcy may want to work with a credit counselor or a financial planner. These professionals can help create a budget based on monthly income and the bills.
  • Using a debit card linked to a bank account offers a credit card’s convenience, but the holder needs to exercise restraint and avoid spending money earmarked for bills.

Bankruptcy is not the end

Those who file Chapter 7 or Chapter 13 can recover, often learning how to identify potential financial problems before they become severe and maintain control of their finances as they move forward. Those looking to rebuild their financial security often start the process by turning to an experienced bankruptcy relief attorney who can help navigate you through the bankruptcy process.