Home » Finance

Can Credit Cards Help You Establish Credit After Bankruptcy?

Mar 28, 2008
The short and simple answer is yes and no. The detailed answer is that it depends on how you use the credit card and which credit card you choose to use. If your credit card is over two years old this article may not apply to you. Most credit card companies will issue fair credit - credit cards to people outside of bankruptcy for more than two years. You may want to avoid applying to the same companies you included in your bankruptcy though.

If you are trying to establish credit after bankruptcy within two years a credit card can be a great way to begin. Before we talk about specifics let's begin with a general understanding about your situation. You have just recently filed bankruptcy on a number of creditors, and in any new creditor's eyes your represent a high credit risk. For this reason, it's logical to expect that you will have to pay the highest interest rates. So our goal should be to re-build our credit with the least amount of cost out of our pocket.

There are unsecured credit cards available that will issue you credit almost immediately after a bankruptcy. In my opinion these types of credit cards are a rip-off and probably a poor step to better credit after bankruptcy. Most of these cards will only start you off with a $300 credit limit and charge you $150 worth of fees on it with your first bill. You are well of 35% of your credit limit on your first bill! You might as well have applied for a secured credit card with a third of the fees.

In my opinion a secured credit card is the way to go. I know you have to send in $300 bucks to get started but the benefits far out-weigh the unsecured cards. Secured credit cards like the Bank of America Secured VisaŽ Platinum Card offer low annual fees and full credit card benefits from day one. The only downside is that you do have to send in your credit limit. Keep in mind, our goal is to re-build our credit with the least amount of money and this card is the answer.

One common misconception is that you have to make charges and on your new credit card and pay them off to build up your credit. This simply is not true. Credit bureaus actually devalue your credit score once you exceed 35% of your credit limit. When future creditors look at your credit bureau they will see how long you have had the card, your credit balance and if you have been late. The credit bureau does not reference your charges in the past, only your current balance. For this reason I suggest that you open up the credit card after bankruptcy and leave it alone.

Another advantage secured credit cards after bankruptcy is the ability to raise your limit by making additional deposits. When creditors see a credit card balance of $300 bucks it's pretty apparent what kind of credit card it is. Other than that they have no idea that it is a secured credit card. So if you treat your secured credit card as a savings account and send funds in to raise your credit limit you can accomplish a number of goals.

First and foremost you can raise your credit balance of the card to add more validity to your bureau. You can also show "credit restraint" meaning, that you have credit available and do not need to use it. Not to mention that you are saving money in a real bank account. Keeping an account of say, $1000 open with a $0 balance for two years will do wonders for your credit scores and give you some money in the bank.

In closing, the best secured credit cards are the ones that are opened with well known banks so that the credit card does not appear to be secured. Look for low annual fees and no junk fees for opening the account. Read the fine print; make sure there aren't any hidden fees for closing the account once your credit heals and you can be approved for fair credit credit cards. Last but not least, add money to them on a regular basis and don't charge on them. There is absolutely no reason to make any charges, your credit will reflect a better score with a $0 balance.
About the Author
Aubrey Clark is an editor and staff writer for DirecBanc.com. His article subjects range from Secured Low Interest Rate Credit Cards to helping consumers find fair credit credit cards.
Rating:
Please Rate:
(Average: Not rated)
Views: 132
Print Email Report Share
Article Categories
    • Artists
    • Gambling
    • Humanities
    • Humor
    • Movies
    • Music
    • Photography
    • Tattoos
    • Television
    • Classic Cars
    • Motorcycles
    • Recreational Vehicles
    • SUVs
    • Trucks
    • Vans
    • Branding
    • Business Opportunities
    • Careers and Jobs
    • Corporate
    • Customer Service
    • Direct Mail
    • Entrepreneurship
    • Ethics
    • Financing
    • Franchising
    • Home-Based Business
    • Human Resources
    • Import and Export
    • Leadership
    • Management
    • Market Research
    • Marketing and Advertising
    • Negotiation
    • Network Marketing
    • Networking
    • Organizational
    • Presentation
    • Project Management
    • Public Relations
    • Small Business
    • Strategic Planning
    • Team Building
    • Telemarketing
    • Training
    • Data Recovery
    • Databases
    • Games
    • Hardware
    • Networks
    • Operating Systems
    • Programming
    • Security
    • Software
    • Spyware and Viruses
    • Ask an Expert
    • College and University
    • Home Schooling
    • K-12
    • Languages
    • Online Education
    • Psychology
    • Coffee
    • Cooking
    • Gourmet
    • Recipes
    • Wine and Spirits
    • Acne
    • Aerobics
    • Alternative Medicine
    • Beauty
    • Cancer
    • Cosmetics
    • Depression
    • Diabetes
    • Diseases and Conditions
    • Fitness Equipment
    • Fitness
    • Hair Loss
    • Heart Disease
    • Medicine
    • Men's Health
    • Muscle Building
    • Nutrition
    • Skin Care
    • Supplements and Vitamins
    • Weight Loss
    • Women's Health
    • Yoga
    • Arts and Crafts
    • Babies
    • Collecting
    • Elderly Care
    • Genealogy
    • Hobbies
    • Parenting
    • Pets
    • Pregnancy
    • Woodworking
    • Feng Shui
    • Gardening
    • Home Appliances
    • Home Security
    • Interior Design
    • Landscaping
    • Affiliate Programs
    • Article Marketing
    • Auctions
    • Audio
    • Banner Advertising
    • Blogging
    • Broadband
    • Domain Names
    • E-Books
    • E-Commerce
    • Email Marketing
    • Ezines and Newsletters
    • Forums
    • Internet Marketing
    • Link Popularity
    • Pay-Per-Click
    • Podcasting
    • RSS
    • Search Engine Marketing
    • Search Engine Optimization
    • Security
    • Social Media
    • Spam
    • Video
    • Viral Marketing
    • Web Design
    • Web Development
    • Web Hosting
    • Copyright
    • Cyber Law
    • Intellectual Property
    • National, State, Local
    • Patents
    • Regulatory Compliance
    • Trademarks
    • Buying
    • Selling
    • Baseball
    • Basketball
    • Boating
    • Cycling
    • Extreme Sports
    • Fishing
    • Football
    • Golf
    • Hockey
    • Hunting
    • Martial Arts
    • Running
    • Scuba Diving
    • Soccer
    • Swimming
    • Tennis
    • Dating
    • Divorce
    • Marriage
    • Weddings
    • Astrology
    • Buddhism
    • Christianity
    • Faith
    • Hinduism
    • Islam
    • Judaism
    • Meditation
    • Metaphysical
    • New Age
    • Cable and Satellite TV
    • Cell Phones
    • Communication
    • Gadgets and Gizmos
    • GPS
    • Satellite Radio
    • Video Conferencing
    • VoIP
    • Addictions
    • Coaching
    • Goal Setting
    • Motivational
    • Stress Management
    • Time Management
    • Clothing
    • Electronics
    • Fashion
    • Gifts
    • Jewelry
    • Causes and Organizations
    • Environment
    • History
    • Holidays
    • Men's Issues
    • Nature
    • Philosophy
    • Politics
    • Women's Issues
    • World Affairs
    • Air Travel
    • Camping
    • Cruises
    • Destinations
    • Outdoors
    • Article Writing
    • Book Reviews
    • Copywriting
    • Fiction
    • Non-Fiction
    • Poetry
    • Quotes
    • Screenplay
    • Tools and Resources