The majority of people who have filed for Chapter 7 or Chapter 13 bankruptcy will have difficulty getting a regular credit card soon after the bankruptcy. For many, not having a credit card can be a blessing in disguise. But others will need a credit card for travel or online shopping. And still others will be ready to start building positive credit history right away – and the way to do this is get credit and use it responsibly.
One way to solve the credit card dilemma is to get a secured credit card. Most people can get a secured credit card soon after bankruptcy. After several months, or a few years of responsible use of the secured card, people can get a regular credit card.
(To learn about other ways to get a credit credit right after bankruptcy, see How to Get a Credit Card After Bankruptcy.)
Here’s how a secured card works:
If you do opt to get a secured card, there are several important things you should know:
When shopping for a secured card, look for one that:
In addition, make sure that the card issuer reports to the three major credit bureaus — Equifax, Experian and TransUnion. If it doesn’t, your responsible use of the card won’t improve your credit rating.
One you have the card, don’t spend the maximum amount on your credit limit. A good rule of thumb is to charge no more than 30% of your limit so that you can comfortably pay the balance in full each month.
Because the interest rate is likely to be high, avoid carrying a balance. It’s best to use the card to make a few small purchases each month, and then pay off the balance to build good payment history.
This goes without saying: Make your payments on time.
Having a secured card allows you to begin establishing a history of on-time payments and demonstrates your ability to use the card responsibly. This will boost your credit score so that one day you will qualify for a regular credit card.
Some secured cards will convert to a regular credit card after you have used it responsibly for a certain period of time; for example, 18 months. This is an excellent way to move towards getting a traditional credit card.