The 3 Best Credit Cards After Bankruptcy, and What to Know Before Applying
One of the many side effects of bankruptcy is the impact it makes on your ability to qualify for a credit card. Getting a credit card after bankruptcy isn’t impossible, but it may be difficult due to the long-term damage bankruptcy does to your credit score. This can be frustrating for bankruptcy filers, since responsibly utilizing a credit card is one of the ways you can repair your credit. Fortunately, there are still options for people who are recovering from bankruptcy, such as becoming an authorized user on another person’s account or opening a secured credit card in your own name.
These are the best credit cards for bankruptcy filers, and everything you should know before applying.
The Best Credit Cards After Bankruptcy
There are many credit cards for people trying to repair bad credit, but some come with few benefits and high fees that do more harm than good for the cardholder. These are the best credit cards for bankruptcy filers who are just starting to get their finances back in order.
The Best Cash-Back Credit Card for Bankruptcy Filers
With $0 annual fee and the ability to earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter, 1% unlimited cash back on all other purchases – automatically, the Discover it® Secured Credit Card is one of the best cards for bankruptcy filers. Not only does it provide you with your FICO Credit Score for free each month, so you can track your progress toward rebuilding your credit, but it will also double your cash back at the end of your first year. Like most secured credit cards, you’ll have to supply a security deposit up front to open your account. Discover will monitor your account, and if you pay your balance off on time each month, for 8 months, they may refund your deposit and upgrade you to an unsecured account.
The Best Low-Deposit Credit Card for Bankruptcy Filers
Like the Discover it® Secured Credit Card, the Secured Mastercard® from Capital One requires you to submit a security deposit to open an account (you’ll be required to make a refundable minimum security deposit of $49, $99 or $200). But while most secured cards have a credit limit equal to the amount you deposited, the Secured Mastercard® from Capital One enables you to earn a higher credit limit after five months of timely payments. If you don’t mind putting down a higher deposit, the Discover it® Secured Credit Card still offers better rewards than the Secured Mastercard® from Capital One, but MasterCard products have the added perk of being accepted at more places nationwide than most Discover cards. Note that to pay the Secured Mastercard® from Capital One’s security deposit you’ll need access to an authorized bank account.
The Best Airline Credit Card for People with Bad Credit
Just because you’re limited to secured credit cards doesn’t mean you can’t still earn free flights. The AeroMexico Visa Secured Card offers people with poor credit double miles on certain purchases, a 3,500-mile bonus for opening and using your account, and a complimentary companion certificate for a free flight.
Unlike the other cards on this list, the AeroMexico Visa Secured Card does come with an annual fee of $25, but that low fee is more than covered by the companion pass. Currently, flights from New York City to Cozumel, Mexico, range from $350 to $650, meaning your card could save you upwards of $625 without other rewards included.
Should You Get a Credit Card After Bankruptcy?
Getting a credit card after bankruptcy can be a smart move, provided you can manage it responsibly. The bankruptcy will have damaged your credit score, and making on-time credit card payments is one of the best ways to rebuild your creditworthiness. Before filling out a credit card application after your bankruptcy, though, consider the reasons you got into financial trouble in the first place and if getting more credit is a move you can handle at the moment.
Perhaps your bankruptcy was the result of an unforeseen and unlucky event, such as a medical emergency, divorce, job loss or natural disaster, rather than bad money management. In that case, you’re more likely to be ready for the financial responsibility of having a credit card again and for beginning the long road to rebuilding your credit. Just make sure to shore up other areas of your financial well-being—such as a stable job and an emergency fund—so you can be prepared for any unexpected challenges you may face in the future.
If, however, the financial spiral that landed you in bankruptcy included overspending, under-saving or bad budgeting, don’t be too quick to access credit again. Instead, work with a credit counselor or financial planner to create a workable budget based on your income and monthly bills. It should also include a plan to grow your savings. If you need the convenience of a payment card in the meantime, use a debit card linked to your checking account or a prepaid debit card. Once you have demonstrated to yourself and others that you can pay your monthly bills on time and save consistently over a long period of time, then consider adding a credit card to the mix. Use it sparingly and responsibly to improve your credit and to build your confidence in managing debt.
How Long After Bankruptcy Can I Get a Credit Card?
Although its negative impact gradually lessens over time, a bankruptcy will stay on your credit report for seven to 10 years. This means your options will be limited for some time. Exactly how long you’ll need to wait will depend on the type of bankruptcy you file: Chapter 7 or Chapter 13.
|Type of Bankruptcy||When You Can Apply for Credit Card|
|Chapter 7||After about 3 months|
|Chapter 13||After 3-5 Years|
Chapter 7 bankruptcy, also known as a liquidation of assets, sells off eligible assets to cover as much of your outstanding debt as possible. The bankruptcy and debts associated with Chapter 7 are typically discharged within three months but remain on your credit report for 10 years from the filing date.
In a Chapter 13 bankruptcy, also known as an adjustment-of-debt plan, the debtor makes partial payments to creditors as part of a three- to five-year repayment plan. The bankruptcy is discharged after the completion of the plan. A Chapter 13 remains on your credit report for seven years from the filing date.
What to Do After Your Bankruptcy Is Discharged
Once your bankruptcy is discharged, you should pull your credit reports from Equifax, Experian and TransUnion to confirm that your lenders are accurately reporting the discharge. Only the debts included in the bankruptcy filing should be reported as discharged. Also, double-check that all of those accounts included in the bankruptcy show a zero balance on your credit reports. After you’ve confirmed that your credit reports are accurate, you can then consider applying for a new credit card.
Even after your bankruptcy is discharged, it may take a while to qualify for a new credit card. Some credit card companies may reject your application simply because you have a recent bankruptcy on your credit report. Others may be less stringent because your risk of filing for bankruptcy again is low, since there are rules restricting when you can file for a second bankruptcy.
Credit Card Strategies After Bankruptcy
Following a bankruptcy, it will be difficult to qualify for an unsecured credit card with low interest rates, high credit limits and attractive rewards programs. But there are still two ways you can regain the convenience of a credit card and the benefits it has for your credit score: secured credit cards and becoming an authorized user.
Secured credit cards: These cards are designed for people with bad or no credit. They require you to make an up-front deposit—typically between $200 and $1,000—to act as a guarantee against the card’s line of credit. The size of this deposit will usually also act as the credit limit on that account. For example, if a card requires a $750 deposit to open an account, you won’t be able to charge more than $750 to that card at any time. There are a handful of secured credit cards, though, that require only a nominal security deposit and charge no annual fee, yet provide a higher line of credit. The deposit is returned if you close the account with a zero balance.
The annual percentage rates (APRs) on secured credit cards are typically higher than the average credit card, so carrying a balance is prohibitively expensive. The key is to use the card responsibly, charging no more than 30% of the credit limit and paying off the balance each month in full.
Make sure your card issuer reports your payment history to at least one of the three credit bureaus, so you can rebuild your credit history. Some lenders will return the security deposit to cardholders after having made timely payments over a long period, such as 12 months, and convert the card to an unsecured one. A few secured cards also come with a rewards program, but be careful to not overspend to earn rewards.
Becoming an authorized user: Another way for you to get a credit card after bankruptcy is to become an authorized user on a card account belonging to someone else, such as a partner, parent or close family member. This is a great option if you’re focused on improving your credit score, since the card’s payment history will be added to your credit report. To get the most credit-building power, become an authorized user on a card that has a high limit, low balance and long, positive payment history. On the other hand, if the cardholder has a history of late payments and carrying a balance from month to month, you’d probably be better off adding your name to someone else’s account.
Make sure you and the account owner make an agreement up front about how much you’re allowed to spend each month, since they’re ultimately responsible for any debt you incur.
Avoid Unsecured Credit Cards After Bankruptcy
There are a handful of unsecured credit cards aimed at consumers with bad credit, such as the Credit One Bank® Unsecured Platinum Visa®. The majority of these cards come with very low credit limits, high APRs of between 25% and 29.99%, and annual fees that can easily exceed $100 a year. Some also have a one-time processing fee to open the account and monthly servicing fees on top of the annual fee. In short, you pay a lot for the privilege of avoiding a security deposit.
Similarly, store credit cards also have lower qualification standards, so a bankruptcy may not disqualify you. But these, too, come with low limits and high APRs, and usually have limitations on where they can be used.
Because of their fees, unsecured credit cards for bad credit typically are more expensive than secured cards. There are plenty of secured cards that don’t charge annual fees, and you can get your security deposit returned as long as you pay your balances off in full every month. But with these unsecured cards, the fees you pay won’t be returned.
Frequently Asked Questions
Will applying for a credit card hurt my credit score
When you apply for a credit card, issuers will check your credit report to see if you qualify. This check will be indicated on your report and may temporarily lower your score. This may feel like a catch-22 for people recovering from bankruptcy: you need a credit card to help repair your score, but applying for cards may actually hurt it. For this reason, we recommend you only apply to a secured card meant for people in your situation. That way, you’ll only need to apply once and you won’t have multiple credit checks listed on your report.
Can I apply for a credit card before my bankruptcy is discharged?
Technically, yes, you can apply whenever you want to. But we don’t recommend it for the reasons outlined above. You’re unlikely to qualify for most cards before your bankruptcy is discharged, and each check could damage your score.