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Starting over after bankruptcy

Dr. Don TaylorDear Dr. Don,
In the past I have owned two homes and was never late with payments. My credit was very good. Due to job and health circumstances I have recently had to file bankruptcy (I did not own a home at the time).

I want to be very careful about re-establishing credit. Can you please tell me the best places to apply for a credit card? I am concerned that due to the bankruptcy I will be charged outrageous interest rates or get myself into some type of problem if I choose the wrong company to apply with. I want ONE card, not multiples. My biggest reason besides re-establishing credit is I sometimes must travel for work and we are required to use our own card and then be reimbursed. I would appreciate any guidance you could give me. Thank you. -- Sharon


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Dear Sharon,
Bankrate is a great place to shop for a new credit card. Its credit card search feature lets you pick the card features that are important to you and compare terms across financial institutions offering these features.

There are companies that prey on the recently bankrupt and charge outrageous fees and interest rates for you to have the privilege of carrying a credit card. The most egregious that I've seen from people writing in to this column is a company that charges $350 in fees to give you a credit card with a $500 credit line.

High rates are a concern, but the bigger concern is your ability to manage credit. If you've done without credit for a while, then there's often a pent-up demand to spend money on items that you can't really afford.

How big a credit line do you need to cover your corporate travels? How quickly will you be reimbursed by your firm when you turn in your expenses? The goal should be a credit card with a high enough line to cover your expenses and a long enough grace period that you would normally be reimbursed before the credit card bill is due.

Often a secured credit card is the best first step for someone who has recently had their bankruptcy discharged. If you're still going through the bankruptcy then you may not have the financial flexibility to set up a secured credit card. In this situation you should check with the court or your attorney.

If a secured card isn't right for you, then you're going to have to consider the high rate cards you're trying to avoid. The less time between you and your bankruptcy discharge, the more risk to the lender. Remember: Your goal is to have a card for corporate travel. If you keep credit charges to just that purpose, then the interest charges should be minimal even at the high APRs charged by these cards. This Bankrate feature identifies companies that extend credit to people in your situation.

Limit your applications to one or two firms. Applying for multiple credit cards makes you look desperate for credit. Lenders hate lending to desperate people. Credit applications stay on your credit report for two years. If you belong to a credit union, you should also check the credit cards they offer to their members.

-- Posted: May 28, 2004




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