Saturday, January 13, 2018
Do You Need Credit Cards After Bankruptcy
Do You Need Credit Cards After Bankruptcy
Whilst a bankruptcy discharge may leave you debt free or in a renewed and healthy financial state, it will also remain on your credit rating prepared 7 to 10 years depending on the type of bankruptcy you have file under. Consequently, your credit rating will be ruined.
Therefore, once your bankruptcy has been discharged you need to focus on rebuilding your credit score. The best way to do this, to prove to the bureaux that you can manage your money sensibly, is to obtain a credit card, use it, but make sure that you pay the balance every month.
This may seem somewhat ironic given the fact that it may well be that it was card debt that got you into trouble in the first place. You may even feel that you never want to have a card again. This is a perfectly natural reaction, and a sensible one, but credit cards, when used correctly, can be incredibly useful for unforeseen emergencies.
True, if you have had a bankruptcy discharge then you may find it difficult to obtain a credit card, particularly in the wake of the recent economic crisis and the resultant reluctance of banks to lend money to anyone they consider the remotest risk.
The 2005 Bankruptcy Abuse and Consumer Protection Act has reduced the risk to lenders by extending the period of time allowed between filings of bankruptcy, which means that someone who, for example, has just received a discharge in a chapter 7 case, cannot then file for bankruptcy again until eight years have passed, and in the case of a chapter 13 bankruptcy, six years.
In addition, some states have no usury law, which means test credit card companies are free to charge higher rates of interest, and will do so to those with dubious credit histories.
The bottom line here is that as a discharged bankrupt, whichever route you go as regards credit, you will almost certainly be faced with a higher than average rate of interest.
Despite this, or more likely because of this, you need to decide before accepting any new credit card that you are going to pay the balance off in full at the due date, and therefore your new card is not to be seen as a source of replacement cash.
Another thing to bear in mind when applying for a credit card is that having an application for a card turned down reflect negatively on your credit rating.
Therefore you need to do some homework. Rather than apply for a card, the best thing to do is to compile a list of reputable card companies and then contact them directly to ask them what their policy is on issuing cards to discharged bankrupts. You can also ask them directly as to whether they would be likely to grant you a card, but make sure that you are talking "off the record" and not as a formal application. That way you minimise the risk to your credit score.
If you experience difficulty in finding a credit card company that will accept you, or if you truly dont want to have a credit card at this stage in your financial rehabilitation, an alternative is to apply for what is called a "secured" credit card. With a secured credit card the credit card issuer takes a sum of money which is held in a deposit account and is equal to the limit on your card. This act as a guarantee to the card issuer that you will never be able to run up more credit than you can afford to pay.
You may feel therefore that there is little point in having a secured card when you might just as well used cash, after all you can only use the card to the same value as the amount of cash you deposited with card issuer.
However, the credit bureaus, (those who calculate your credit rating) do not see you spending cash. They do, however, see your spending on a secured credit card, and even though the card is secured against your deposit, using the card and paying the balance off in full every month will help to restore your credit rating.
Therefore, once your bankruptcy has been discharged you need to focus on rebuilding your credit score. The best way to do this, to prove to the bureaux that you can manage your money sensibly, is to obtain a credit card, use it, but make sure that you pay the balance every month.
This may seem somewhat ironic given the fact that it may well be that it was card debt that got you into trouble in the first place. You may even feel that you never want to have a card again. This is a perfectly natural reaction, and a sensible one, but credit cards, when used correctly, can be incredibly useful for unforeseen emergencies.
True, if you have had a bankruptcy discharge then you may find it difficult to obtain a credit card, particularly in the wake of the recent economic crisis and the resultant reluctance of banks to lend money to anyone they consider the remotest risk.
The 2005 Bankruptcy Abuse and Consumer Protection Act has reduced the risk to lenders by extending the period of time allowed between filings of bankruptcy, which means that someone who, for example, has just received a discharge in a chapter 7 case, cannot then file for bankruptcy again until eight years have passed, and in the case of a chapter 13 bankruptcy, six years.
In addition, some states have no usury law, which means test credit card companies are free to charge higher rates of interest, and will do so to those with dubious credit histories.
The bottom line here is that as a discharged bankrupt, whichever route you go as regards credit, you will almost certainly be faced with a higher than average rate of interest.
Despite this, or more likely because of this, you need to decide before accepting any new credit card that you are going to pay the balance off in full at the due date, and therefore your new card is not to be seen as a source of replacement cash.
Another thing to bear in mind when applying for a credit card is that having an application for a card turned down reflect negatively on your credit rating.
Therefore you need to do some homework. Rather than apply for a card, the best thing to do is to compile a list of reputable card companies and then contact them directly to ask them what their policy is on issuing cards to discharged bankrupts. You can also ask them directly as to whether they would be likely to grant you a card, but make sure that you are talking "off the record" and not as a formal application. That way you minimise the risk to your credit score.
If you experience difficulty in finding a credit card company that will accept you, or if you truly dont want to have a credit card at this stage in your financial rehabilitation, an alternative is to apply for what is called a "secured" credit card. With a secured credit card the credit card issuer takes a sum of money which is held in a deposit account and is equal to the limit on your card. This act as a guarantee to the card issuer that you will never be able to run up more credit than you can afford to pay.
You may feel therefore that there is little point in having a secured card when you might just as well used cash, after all you can only use the card to the same value as the amount of cash you deposited with card issuer.
However, the credit bureaus, (those who calculate your credit rating) do not see you spending cash. They do, however, see your spending on a secured credit card, and even though the card is secured against your deposit, using the card and paying the balance off in full every month will help to restore your credit rating.
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