Bankruptcies have a lifelong impact not just on your credit and finances, but exponentially affect you psychologically. However, with support from banks and sensible spending, you rebuild your credit score slowly.
You can apply for a credit card after Chapter 7 which is designed for someone who is rebuilding their credit score. It is tough to get good credit as Chapter 7 bankruptcy stays on your credit score for 10 years. People with this type of bankruptcy do not qualify for rich credit options.
What is Chapter 7?
This is a bankruptcy where all debts are cleared off. Even your assets will not be left out from being sold to clear the debt. This pays your creditors and clears all debts completely. The plus side of this type of bankruptcy is that you can start afresh once all the loans are paid and you no longer have any liability to creditors. In this case, your credit score suffers badly and appears on your credit score for a long time.
For people struggling with bankruptcy, there are still some options. They can become an authorised user on someone else’s account or apply for a secured credit card in your name.
When applying for a credit card after Chapter 7, here are a few steps that you must take.
Discharge the Bankruptcy
Before applying for a credit card, you must settle all your previous bad debts. You have to take the court’s approval or you cannot apply for a new credit card if the bankruptcy case is not discharged in court. For the debts to be discharged in the case of Chapter 7, the period is four to six months post the initial filing.
Check your credit score
While the bankruptcy notation will exist on your credit score for 10 years, you can improve the future by showing positive behaviour and paying your debts on time from now on. If you use the credit card responsibly, you can slowly rebuild your credit score. Yes, you are indeed in a tricky situation as you will not qualify for robust credit cards that offer rich perks and help you pay out debts quickly.
Hence, the most viable step here is to apply for a credit card that in order to build a good credit score. You must opt for a secure card as the court might give you approval for this card even with a recent bankruptcy. As a norm in the secured card, your credit limit will be the amount of your security deposit.
Unsecured card lenders might not be stringent about the security deposit or your credit history. This is because they might charge high credit fees or the credit might involve hidden fees that are revealed at a later stage.
After receiving the credit card
- Even after securing a credit card, do not stop your endeavour to improve your credit score. This will help you in getting better credit cards in future. Also, you will be eligible for better loans.
- If you have rented a space, ensure that there are reports of your regular payment of rent. Reporting prompt rent payments also increases your credibility for future credit lines.
- Design a meticulous plan to pay off the debts and pay your future bills on time. Your history of payment accounts for approximately 35% of your FICO credit score. Also, make efforts so that your credit utilization is minimal.
- Always resist the urge to ask for an extension of your credit line. Try to keep the credit card balance to a minimal amount. This is because, after Chapter 7, the credit card will not have a good rate. Moreover, it might be secured by your deposit.
- One-time payments are the best bet against building your credit utilization. This is seconded by keeping your credit balances low. Another advantage of a low credit balance is that you can save money on interest.
After bankruptcy, when you apply for a credit card, you must check for pre-approval offers. Getting a secured credit card can be an uphill task after Chapter 7. Nevertheless, reputed financial institutions have floated many credit cards for those having poor credit. Make sure you do not lag in paying your debts this time!