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 card
If 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.
When choosing a card, avoid variable and teaser rates, says Kenner. Taking on debt “is about anticipating what might happen,” she says. “Of course, you plan to pay it off every month, but life is full of surprises.
Always consider credit card rates, fees and policies. Howard advises selecting a card that gives you a grace period, or an interest-free period between the time you make the charge and your billing date to pay off your charges. And shoot for a card with $20 or less in annual fees, he says.
Another option is a true “charge card,” which requires you to pay off the balance each month.
But make sure you understand the penalty fees and rate increases that could come with a late payment, says Kenner.
Secured or unsecured?
Secured cards backstop your credit limit — often a few hundred dollars — with a deposit of equal size. Depending on the card policies and your credit card use, you may or may not get the money back later.
Some cards will reward you by converting the secured card to an unsecured card after a certain period of good behavior, says Howard. But if you misuse the card or don’t pay the bills, you could lose your deposit.
“There are good secured cards and there are secured cards which are rip-offs,” Howard says. His advice is to look for a card with no application fees, annual fees of $50 or less and an interest-bearing account for your security deposit.
Also make sure to avoid cards that charge high fees. Some will charge amounts equal or close to the amount of the credit line, he says.