You've been to bankruptcy court and back again. So how do you know if you're really ready for a credit card?
Here are some points to ponder.
Is the credit card for items you normally buy with cash or a debit card?Smart card users see plastic as just another payment method, says Clark Howard, nationally syndicated talk show host and co-author of "Get Clark Smart: The Ultimate Guide to Getting Rich from America's Money-Saving Expert."
They don't use plastic to buy things they can't afford to purchase with cash.
So, they might use a credit card to buy a plane ticket online for convenience. They wouldn't use one to buy a plane ticket to Asia that they can't quite cover at present.
Why did you go bankrupt?Sometimes people go bankrupt due to circumstances that are out of their control such as illness, medical bills, extended unemployment and divorce. Consumers run up the credit card balances trying to make ends meet then realize it's unsustainable and file bankruptcy.
One way to guard against unforeseen factors is to have two months' salary saved before you apply for a credit card and pay off the entire balance each month for the first six months to a year, says Carol Kenner, an attorney with the Boston-based National Consumer Law Center who spent 18 years as a bankruptcy judge.
That way, "you're not getting in over your head, and you're not incurring any interest or charges," she says.
If you can pay off the balance on time and in full for the first six months, you may be truly ready for a credit card, says Howard. "But if you slip up, even once, you can't handle credit," he says.
In some bankruptcies, bad decisions on debt and poor money habits are the culprit. If that's the case, you need to measure whether you've truly changed your free-spending ways.
Howard says his way of telling whether a post-bankruptcy consumer is ready to handle a credit card is if the consumer takes some responsibility for the bankruptcy. If the bankruptcy was everyone else's fault, "I know they're only kidding themselves," he says.
What to look for in a cardIf you decide you are ready for a card, don't just pick one that solicited you or go for a credit card marketed to consumers with bad credit, says Kenner. Do your own shopping.
Also, make it a major bank card that can be used anywhere, she says. Because the reason for getting a card is convenience, choose one that you can use in a wide variety of places.
Before you apply, pull your credit report, pay for your credit score and talk to the issuers to see what kind of deal you could get. A good place to start is your bank as well as local credit unions.
Shop around and try to apply for a credit card just once, if possible. Each card application can potentially lower your credit score, according to FICO, the company that produces the FICO score.