Picking up a credit card after bankruptcy may seem like a huge risk, but this step could actually be crucial to helping you recover. After all, having a credit card will give you the opportunity to prove your creditworthiness and to have all your credit movements reported to the three credit bureaus. With enough positive reporting on your credit reports, you’ll have a shot at moving past bankruptcy and getting a fresh start on your finances.
Unfortunately, card issuers aren’t necessarily eager to extend a line of credit to individuals with a bankruptcy in the recent past, which is why bankruptcy credit cards tend to be few and far between. However, credit cards for people with bankruptcies do exist if you look hard enough. Cards in this niche tend to be secured credit cards instead of unsecured, meaning you’ll have to put down a cash deposit as collateral to get started.
Should you get a credit card after bankruptcy?
If you hope to rebuild your credit and your finances after bankruptcy, a credit card can help. Not only can bankruptcy credit cards make it possible for you to add positive history to your credit reports, they can also help you re-learn positive money habits.
The key to making the most out of a credit card after bankruptcy is avoiding mistakes or issues you’ve had in the past. Having been through bankruptcy means you’ve experienced financial distress and been in a position where you could not pay your bills. If you’re considering a credit card now, in your new post-bankruptcy life, it’s crucial to make sure you use a credit card the right way from the start.
What does this mean? For the most part, this means you’ll only use your bankruptcy credit card for purchases you can afford to pay off right away. Further, you should strive to pay your bill early or on time each month, and you should refrain from using plastic as a short-term loan.
Remember that credit cards — and especially credit cards for people with bankruptcies — often charge exorbitant interest rates that make carrying a balance a pricey endeavor. To make the most out of credit cards after bankruptcy, it’s important to cultivate a new mindset about debt and only use credit for purchases you can afford to pay for in cash.
What is the best credit card after Chapter 7 bankruptcy? Or Chapter 13? Consider these top four options that can help you rebuild your credit and move on with your life.
Discover it® Secured
The Discover it® Secured credit card is our top recommendation among bankruptcy credit cards due to the limited fees you’ll face and the rewards you can earn. This card doesn’t charge an annual fee, nor does it charge foreign transaction fees. You’ll also avoid late fees on your first late payment (after that it is up to $40), and you’ll receive a free access to your FICO score on your monthly credit card statement each month.
In terms of rewards, this card doles out 2 percent cash back on up to $1,000 in combined spending at gas stations and restaurants each quarter (then 1 percent), as well as 1 percent back on all other purchases. Discover will also match all the rewards you earn after the first year.
Best starter card
Secured Mastercard® from Capital One
The Secured Mastercard® from Capital One is another secured credit card without an annual fee, and it’s easy to get started with an initial deposit as low as $49, $99 or $200, but it can be paid in ($20 minimum) installments within the first 35 days of your application. Also note that Capital One will automatically consider you for a higher credit line in as little as 6 months with on-time monthly payments.
This card doesn’t offer any rewards, but you do get to avoid paying foreign transaction fees. Cardholder perks include Fraud Coverage, Emergency Card Services and Mastercard ID Theft Protection.
Best with no credit check
OpenSky® Secured Visa® Credit Card
If you’re worried about not being approved for bankruptcy credit cards, the OpenSky® Secured Visa® Credit Card should give you plenty of peace of mind. This secured credit card doesn’t even check your credit when you apply, which means that almost anyone can get approved.
This card does come with a $35 annual fee, and you will pay a 3 percent foreign transaction fee on purchases made outside the United States. However, you can get started with an initial deposit as low as $200 and your credit movements will be reported to all three credit bureaus.
Best for balance transfers
UNITY® Visa Secured Credit Card
This card charges a $39 annual fee, yet you can qualify for an initial credit limit starting at $250 and your payments will be reported to all three credit bureaus. What makes this card stand out is its ongoing interest rate and introductory balance transfer offer, which could be a lifesaver if you need to escape high interest debt.
Once you sign up for the UNITY® Visa Secured Credit Card, you’ll qualify for a fixed APR of 17.99 percent on purchases. However, balance transfers qualify for an introductory APR of 9.95 percent for six months, followed by the standard fixed interest rate of 17.99 percent. Note that a 3 percent balance transfer fee (minimum $10) applies.
How to choose the best credit card after bankruptcy
For the most part, you’ll be limited in terms of credit card options after you complete bankruptcy. Most credit cards you’ll be able to qualify for will be secured credit cards, meaning you’ll have to put down a cash deposit to get started.
However, you should remember that credit cards for bad credit don’t have to be forever. The purpose of a bankruptcy credit card is to give you an opportunity to prove your creditworthiness once again. Eventually, you should be able to improve your credit score and move up to a credit card with better perks and rewards.
As you consider all the card options available to you right now, here are the main factors you should weigh and compare:
- How much you can afford for an initial deposit? Some secured credit cards require a higher initial deposit than others. Make sure you consider how much you can afford to put down as collateral, then compare cards that offer reasonable initial deposit requirements.
- Do you want to earn rewards? Some secured credit cards offer rewards as a percentage of your purchases, but these rewards often entice consumers to spend more than they planned. Our advice? Only sign up for a card that lets you earn rewards if you are certain you can pay your balance in full each month.
- What is the ongoing APR? Know and understand the ongoing APR you’ll be charged if you carry a balance. Also note that some secured credit cards charge considerably higher interest rates than others.
- What fees will you have to pay? Finally, watch out for annual fees, monthly maintenance fees and other hidden fees that credit cards for bad credit often charge. Ideally, you’ll opt for a card with minimal fees, or better yet none.
What You Should Know About Credit Cards After Bankruptcy
Will you get approved for a credit card following a bankruptcy?
A Chapter 7 bankruptcy can remain on your credit report for 10 years, whereas a Chapter 13 bankruptcy typically stays on your credit report for 7 years. During this time, it can be difficult (but not impossible) to get approved for a credit card.
You’ll have the best shot at getting approved for a credit card after bankruptcy if you spend some time working on improving your credit score before you apply. If you’re able to move the needle and get your FICO score into the “fair” range (580 to 669), for example, lenders and card issuers may be more willing to approve you for their products. Want to see if you pre-qualify without affecting your credit score? Check out our CardMatch feature and get matched with a card that best fits your needs.
How soon after bankruptcy should you apply for a credit card?
You can apply for a credit card right after bankruptcy, but you’ll need to be realistic about the type of credit card you can qualify for. Generally speaking, you’ll have a better shot at getting approved for a credit card for bad credit after a bankruptcy. You may also want to consider a secured credit card that requires a cash deposit as collateral since this card is considerably easier to get approved for.
How can a credit card help you build your credit
A credit card helps you build credit based on the simple fact all your movements are reported to the three credit bureaus — Experian, Equifax and TransUnion. Once you’re approved, you will slowly improve your credit score if you use your credit card responsibly. For example, make sure you pay your credit card bill early or on time each month. In the meantime, strive to keep your credit utilization below 30% for the best results. This means maintaining a balance of $3,000 or less for every $10,000 in available credit you have.