Whether you are looking to establish new lines of credit to improve your credit score and history, or you are taking the first step to buying a car/mortgaging a home. Finding the right credit card can make all the difference in the world. The first thing to remember when looking to start a line of credit after bankruptcy is that you are working towards new credit history to better your relationship with creditors. Therefore, it is imperative to remember, “pay your bills early or on time,” this cannot be stressed enough.
Type of Bankruptcy: Assessing the Starting Point
The first step is to determine your individual financial situation and analyze your budget. This will allow you to determine; if or when you can start taking out lines of credit, to what credit extent you can apply for, and what types credit cards are available to you, either secured or unsecured. If you filed for chapter 7 bankruptcy you can establish credit 90 days after filing, and immediately upon discharge. If you filed for a chapter 13 bankruptcy you can establish new lines of credit only by approval from a bankruptcy judge through the trustee, or you can wait to file upon completion of your plan and after discharge.
Depending on your financial situation and budget, or where you are in regards to the bankruptcy process, it can be a good idea to start establishing credit as soon as you can. For more information about assessing your finances click on the following link: finance.
Research Twice, Inquire Once
Once again, that old phrase our grandfathers and fathers used to tell us, “measure twice, cut once,” has become applicable. They were right then, and they are right now, in a situation where you have progress to lose by acting, it is crucial to make sure you are in fact right. In this scenario think of measuring where to cut as doing your due diligence and research about a credit card. Then when you are ready to “make the cut,” by applying for a credit card and establishing an inquiry and potential line of credit on your credit report. You will know it is a well accounted for building block, adding to the structure and integrity of your credit.
Banks have very strict and precise credit requirements. You should research potential credit card companies before you apply for a card placing an inquiry on your credit report.
A couple of people you should ask to speak with, to learn about credit requirements are:
- Credit analyst
- Underwriter
You can ask as many questions as you want, and call as many places as you need; to determine what line of credit is best for you.
What to Look Into
Below are some key points to address when you call. Make sure to write down the answers so that you can compare all your credit options when you are finished with the research.
- Ask about the “Grace Period.”
- If you tend to pay off your credit card every month then you should look for a card with a grace period.
- Figure out what the annual fees are for each card and if there are other costs associated with owning the card besides interest.
- Avoid annual fees if you can, i.e. over-limit fees, late fees.
- Exception being frequent flyer cards if that is a reward that financially suits you.
- Ask about interest rates, you should look for a card with a low rate of interest.
- Avoid high-interest credit! Credit lenders will consider you a high-interest customer if you have a lot of existing high-interest credit on your report.
- There is no reason to be paying exorbitant interest fees, even after bankruptcy.
- Look for “mainstream” credit such as major bank cards from a bank. To check if your card comes from a major bank go to the Better Business Bureau website.
- What credit bureaus do they report to? (Experian, Equifax, or TransUnion.)
Type of Credit
- Secured Card
- Unsecured Card
For more information about secured and unsecured cards click the link to our blog, Secured or Unsecured Credit.
Cash Back vs. Rewards
These programs can be very valuable to you if you pay your balance in full every month. Cashback cards usually have higher interest. Ask yourself, do you pay off your credit on time so that the cashback rewards outweigh the interest? Reward programs offer various rewards percentages as an incentive to use their cards. Look at what the rewards correspond to i.e. flying mileage, gas, groceries, etc., and cross analyze that with your most frequent expenses and find the best rewards program for yourself. Weighing rewards benefits against interest percentage, to determine the best card for your lifestyle.
Everything in a Nutshell
After bankruptcy, it is important to reestablish credit and this means obtaining new and positive lines of credit, as daunting of a task as this may seem. Your best tool is knowledge, research and to consider all credit card options before applying. You can ask as many questions as you want and call as much as you need to determine what line of credit is best for you. This approach then reduces the amount of inquiries on your credit report.
Consider speaking to a credit analyst or underwriter and ask them some of the following things; credit requirements, grace periods, interest rates, secured and unsecured cards, when or if a secured credit card become unsecured, what credit bureaus do they report to, is your card reported as secured or unsecured, and possible rewards & interest rates… Write down the answers to all these questions so you can compare all your potential credit cards and find the best one.
Finally, make sure that you are paying your credit card bills early or on time. It is important that this new line of credit becomes a tool used to increase your credit score and establish positive credit. If you start practicing good behaviors in the beginning and stick to them, they will become habits and passive behavior. Condition your credit actions to create positive spending and budgeting outcomes.
