Credit Cards After Bankruptcy
Which Is Better For You?
Secured or Non-Secured
Secured Credit Cards After Bankruptcy
Getting credit cards after bankruptcy is important to start to re-establish your credit. It used to be that the only type of credit cards after filing bankruptcy that were available to you were secured credit cards.
A secured credit card is a type of card secured by a deposit account owned by you. What you need to do is deposit between 100% and 200% of the total amount of credit that you want. That means if you put down $1000, you will be given credit in the range of $500–$1000. This deposit is held in a special savings account. The issuers offer this as they have noticed that delinquencies were notably reduced when the customer perceives he has something to lose if he doesn't repay his balance.
You are still expected to make regular payments, as you would with a regular card, but should you default on a payment, the card issuer has the option of recovering the cost of the purchases paid to the merchants out of the deposit.
You Can Have Credit Cards After Bankruptcy!
An advantage of the secured card for an individual with negative or no credit history is the ability to rebuild credit. Most companies now report regularly to the major credit bureaus. This allows for building a positive credit history. You need to make sure that that the credit card company does report to the credit reporting agencies. If they don't you are not gaining anything -you are not re-building your credit.
Although the deposit is in the hands of the credit card issuer as security in the event of default by you, the deposit will not be debited simply for missing one or two payments. Usually the deposit is only used as an offset when the account is closed, either at the request of the customer or due to severe delinquency (150 to 180 days). This means that an account, which is less than 150 days delinquent, will continue to accrue interest and fees, and could result in a balance, which is much higher than the actual credit limit on the card. In these cases the total debt may far exceed the original deposit and you not only forfeit your deposit but you are left with an additional debt.
Most of these conditions are described in a cardholder agreement, which you sign when your account is opened. Read the agreement!!
Secured credit cards are an option to allow a person with a poor credit history or no credit history to have a credit card, which might not otherwise be available. They are often offered as a means for you to re-build your credit. Secured credit cards are available with both Visa and MasterCard logos on them.
Fees and service charges for secured credit cards often exceed those charged for ordinary non-secured credit cards, however, for people in certain situations, (for example, after charging off on other credit cards, or people with a long history of delinquency on various forms of debt), secured cards can often be less expensive in total cost than unsecured credit cards, even including the security deposit.
The main things to look out for when shopping for your credit cards after bankruptcy are:
The Grace Period
A credit card's grace period is the time the customer has to pay the balance before interest is charged to the balance. Grace periods vary, but usually range from 20 to 30 days depending on the type of credit card and the issuing bank. Think of it like getting free credit for that time period. I strongly suggest that you pay off your card at the end of each credit billing cycle, giving you free credit.
Fees
Credit card companies will charge you fees. They all do. Look out for the companies that are out to get you. Look for the rates that they will charge you for your annual fee, your start up fee, your APR (annual percentage rate) and your balance transfer fee. Expect to pay somewhere between $25 and $50 for the annual fee, about the same for the start up fee (some do not charge a start up fee). Make sure you are not charged a transaction fee.
Reporting to Credit Bureaus
Please make sure that the credit card company reports your payment history every month to the three major credit bureaus. If they don't report that you are paying each month, on time then you are not re-building your credit and this card will be a waste. Re-building your credit is important because when it comes time to purchase anything on credit, this is where the lender is going to be looking. The other catch with the secured card is how the card gets reported. You do not want the credit card company to report to the bureaus as "secured". This a question that you will need to ask when you apply for the card.
Unsecured Credit Cards After Bankruptcy
When you think of credit cards, this is the one that you usually think of. However, if you have bad credit, you are learning that it can be difficult to get the "regular" credit card.
It can get downright frustrating because you are probably getting lots of letters for getting credit cards after bankruptcy saying that you are "pre-approved" for their card. Then when you apply you get rejected. If you don't get rejected you are probably be looking at lower limits and higher rates.
If you do a little research you will find that there are some good unsecured credit cards that you can get after bankruptcy.
And your really have to watch out for less reputable companies who want to take advantage of your situation. I would say that most of the credit card companies that offer to help you after filing, or with poor credit are in this boat.
Be aware of the offers of unsecured cards that charge huge fees. There is an advertisement that guarantees you will be accepted for an unsecured credit card. Sure enough you will get an unsecured credit card with a credit limit of $300.00. Then you get charged a program fee of $98.00 and account set up fee of $70.00 and don't forget the annual fee of $60.00. All of this before you have even purchased anything. If you do go for an unsecured card make sure you read the fine print, especially regarding the fees.
Remember that getting credit cards after bankruptcy is important and doable AND you are using these cards to re-build your credit, not to go on a spending spree. Go with a low credit limit. This will help you to not overspend.
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