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Credit Cards After Bankruptcy

If you’ve filed for bankruptcy, you may believe that you will never be able to obtain a credit card again. You may feel you’ll be stuck with a damaged credit score forever. Fortunately, this is far from the truth, as obtaining credit cards after bankruptcy is not difficult.

In the event that you have questions or concerns regarding credit cards or life after bankruptcy, you should consult an experienced Cleveland bankruptcy attorney from Luftman, Heck & Associates. You can call us at (216) 586-6600.

Credit Card Companies Are Drawn to Individuals Who Have Filed for Bankruptcy

After you’ve completed your bankruptcy case, you will likely receive multiple credit card offers and wonder why you are so attractive to credit card companies. If you’ve filed for Chapter 7 bankruptcy, these companies know that you have wiped out all of your medical bills, credit card debt, and other unsecured debt.

They are also aware of the fact that you will not be able to file for Chapter 7 again soon, making you a good credit risk. Additionally, credit card companies know that filing for bankruptcy usually only occurs once in an individual’s life and teaches them to be more responsible and pay their new debts on time in the future.

Why Get a Credit Card After Bankruptcy

Although it may seem counterintuitive, applying for a credit card after bankruptcy can be a good move. If you use a credit card responsibly, you can rebuild your credit profile. To ensure you are using it responsibly, you must pay it off in full each month and do your best to avoid charging more than 10 to 30 percent of your credit limit. By following these tips, you can show that you are a safe credit risk and enjoy an increased credit score as a result.

Unsecured vs. Secured Credit Cards

Most people have unsecured credit cards. When you use an unsecured credit card to make a purchase, you are basically borrowing money from the credit card company and paying interest until you pay back the amount you borrowed. These types of credit cards are riskier for a credit company because if you fail to pay, the credit card company can only sue you for the balance. Additionally, credit card companies know that if you file for bankruptcy, unsecured credit card debt will probably get discharged.

Following bankruptcy, you may receive offers to obtain an unsecured credit card. However, these offers will likely come with high interest rates or a low introductory interest rate that quickly skyrockets into a very high one. Unsecured credit cards may also charge you annual or monthly fees.

Secured credit cards differ from unsecured credit cards because you must deposit money into a savings account in order to use them. If you opt for an unsecured credit card, the bank will set your credit limit at a percentage of your deposit. This percentage can be as low as 50 percent and as high as 120 percent.

The payments you make on these types of credit cards will be reported to major credit bureaus, making them less risky than unsecured credit cards and a great option if you’ve filed for bankruptcy and are trying to rebuild your credit.

Prepaid Credit Cards

It’s important to avoid confusing a secured credit card with a prepaid credit card. Although both of these cards are based on the same principle, activity on a prepaid card is not reported to credit bureaus like it is with a secured card. A prepaid card is a debit card rather than a credit card and will not help you improve your credit score.

Although using a prepaid card isn’t an effective way to rebuild your credit, you shouldn’t avoid using one. Using one can help you stick to your budget because it will allow you to load money onto it each payday. After the money is gone, you’ll know that you can’t use the card until your next payday.

What to Do Before Obtaining a Credit Card

After your bankruptcy discharge, you should get a copy of your credit report from Experian, Equifax, and TransUnion. Then, thoroughly review each of these reports and look for incorrect information like discharged debts that may have not been removed or accounts that are not yours.

Once you’ve established that your credit report looks okay, you should research the various secured credit cards available to you and select the one that does not have an application fee and charges a reasonable annual fee. Additionally, make sure the credit card company will report to Equifax, Experian, and TransUnion. If it fails to do so, you won’t be able to improve your credit rating by using your card responsibly.

Contact Luftman, Heck & Associates

If your bankruptcy case has been completed and you are unsure of whether you can apply for a credit card, call the Cleveland bankruptcy lawyers of Luftman, Heck & Associates today at (216) 586-6600, or contact us online for a free consultation. We can answer your questions and help you find a credit card that makes sense for your particular situation.