I expect credit cards were a big factor that led to your decision to file bankruptcy. Interestingly, credit cards are also going to be the most important tool for rebuilding your credit after bankruptcy.
Love them or hate them, if you want to improve your credit scores after your bankruptcy you’re most definitely going to need them.
Your credit scores are designed to demonstrate to third-parties how effective you are at managing several different types of credit availability. It is tough, if not impossible, to demonstrate your ability to responsibly manage credit without your having access to credit cards.
But, worry not…credit cards themselves are not inherently evil.
Although your reliance on credit cards is most likely the impetus of your bankruptcy filing, credit cards themselves were not. Credit cards are effective if used solely as tools of convenience, and not as a source of emergency funds when the inevitable unexpected financial crisis arrives.
If you only use credit cards as tools of convenience, maintain zero balances and stockpile an emergency savings fund of at least $5,000, you’ll eliminate your risk of falling into the trap of credit card reliance that inevitably leads to financial failure.
With that said, let’s dive into the discussion on the three top credit card choices for improving your credit scores once your bankruptcy is complete…
OpenSky Secured Visa
This OpenSky Secured Visa is a terrific choice for your initial credit card following your bankruptcy for a variety of reasons. First, there is no credit check. You’re guaranteed to be approved since the initial credit limit is only $200, and you must provide a refundable deposit of $200.
Without a credit check, there is no post-bankruptcy inquiry placed on your credit report. This allows you to enjoy the benefit of establishing a new credit line on your credit reports without having any derogatory inquiry reported. The downside is you’ve got to pay an annual fee of $35 each year you have the card.
You should make this the first credit card you apply for after your bankruptcy discharge order is entered. After you’ve reviewed your credit reports to confirm that your bankruptcy is being properly reported, as discussed in detail in my prior post, you should then apply for this secured Visa.
Once you get the card, activate it and use it to make small purchases only. As with any credit card, never allow the balance to go higher than 30% of the total credit limit (i.e. if the limit is $200, then never make a purchase of $60 or more). Don’t carry any balance from month-to-month.
Discover it Secured Card
The Discover it Secured Credit Card offers a great cash back option without any annual fee. Cardholders can earn 2% cash back on restaurant purchases and fuel ups at the gas station and 1% on all other purchases. Discover also matches your cash back at the end of your inaugural year as a cardholder.
Like the OpenSky Visa, this Discover card is secured. You’ll be required to pay a deposit initially to establish the account for an amount equal to the credit limit for which you are approved. The deposit is fully refundable, however, after eight months of on-time payment history. At that time, your deposit will be refunded, and your account converted to an unsecured credit line.
One important thing to note, this card is not available to those with Chapter 13 cases pending. If you’ve already received your discharge, then you will be fine. Those with completed Chapter 7 cases will also not have a problem.
Also, be aware that the annual percentage interest rate is 24.99%. That’s an astronomical cost of carrying balances from month-to-month. Of course, if you’re following along with the advice found here at BK180, then you’ll have nothing to worry about. You no longer have credit card balances from month-to-month!
Credit One Bank Platinum Visa
The Credit One Bank Platinum Visa is a great choice for your first unsecured credit card after bankruptcy. Since the card offers an unsecured credit line, there is no need for you to pay any deposit, but there is an annual fee associated with the card of up to $75 in the first year, then $99 each and every additional year. This annual fee gets charged to your account and could exceed the 30% rule mentioned above, so be sure to watch out for it and pay it off immediately once it hits.
There are many cool features with this Credit One Bank card that assist anyone coming out of bankruptcy. First, your credit line is reviewed automatically for credit line increases. If you’re using the card regularly and paying off the balance each month, your credit limit will automatically increase in six months.
Second, Credit One Bank offers a “pre-qualification” form online whereby you can see if you qualify for the card without having an inquiry on your credit report. This way, you can actually apply for the card once you’ve been “pre-qualified,” thus increasing the likelihood that you’ll receive an approval.
Finally, you have the opportunity to earn 1% cash back on your purchases. You may not be eligible for this benefit immediately upon approval, but once your credit scores reach a certain point, you will become eligible to receive the cash back offer.
Credit cards are an awesome tool for those with the right personal financial habits. If you only use credit cards as tools of convenience, maintain zero balances and keep an emergency savings fund of at least $5,000, you’ll be on your way to enjoying excellent credit scores.
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