Credit Card Use After Bankruptcy
After filing bankruptcy, it can be difficult to start building up your credit score once again. There are a number of ways to improve credit, credit card use being one of the easiest. It may seem counterintuitive to pick up a credit card right after bankruptcy, especially if credit card use was what got you into this, but it can be a useful tool for building credit when utilized correctly.
There are a few reasons credit card use might be the best method for improving credit, as opposed to other approaches. For one, credit card limits are relatively small compared to other loan amounts, such as a car or home loan. Starting small with a limit of $1,000 or so can be a great starting point as you learn to build credit without re-accumulating debt. Credit cards also report to credit bureaus, just like other loans, which means you can start building credit almost immediately.
Opening a credit card account can sometimes be a challenge for folks who have recently filed bankruptcy, but some lenders are certainly willing. A secured credit card account might be a reliable alternative to a normal credit card for those who are otherwise unable to obtain a standard credit card or simply wish for a more fortified account. Secured credit cards require a deposit before the account can be opened, which is used as collateral. The deposit is usually small and may range from between $50 to $200, depending on the amount you qualify for. And, because secured credit cards require this deposit, nearly anybody can qualify.
Like standard credit cards, secured credit cards also report back to the credit bureaus, so you can start building credit quickly. They also require repayment in a timely manner, just like any other credit card or loan, otherwise, the borrower may suffer penalties or additional fees.
To use your credit card to its full advantage, make small purchases about once a month. Keep these charges small and never exceed 30% of your credit limit, as this can damage your credit score rather than help it. Also, pay off your balance in full each month when you receive the statement balance. Do not miss your due date.
After following this plan for 6 months or a year, you will likely qualify to graduate from your secured credit card to an unsecured credit card, potentially with a credit limit increase. If you do not automatically receive notice of a graduation, ask your credit card company about the possibility. If they deny you, consider opening a separate unsecured credit card. Also, increasing your credit limit regularly can serve to prove your reliability, as long as you don’t also increase your spending. Remember, do not exceed 30% of your credit card limit, secured or unsecured.
Watching your credit score and building up good credit is one of the best things you can do for your financial security. Good credit enables you to qualify for home loans, auto loans, and other big financial moves that would otherwise be difficult. If you need additional help getting back on your feet after bankruptcy, or you think you may need to file bankruptcy, our firm can help.
Contact Atlas Consumer Law to get started.