After bankruptcy, the earlier you can establish a favorable credit card score in order to prove to potential lenders that you can responsibly manage your borrowings, the sooner you will become eligible for larger loans such as a mortgage. This can be much easier than you may have expected, especially if there are no debts which have survived your bankruptcy. Even if there are a few surviving debts, the longer it takes to actually prove you are able to maintain good credit, the more likely it is you will be approved for larger borrowings such as loans and mortgages.
Secured Credit Cards
While your main goal may be to achieve a premium credit card in the long run, short term this will be unattainable. The best starting point is to apply for a basic secured charge card. A secured card will require that you send a security deposit to the issuing bank or credit card company. This deposit will become the credit limit you can make charges up to. For example, depositing $500 into your account will give you a spending limit of $500.
The deposit is held in case of failure to make repayments. You may be able to deposit more to extend your credit line, or with some banks you may be offered an extended line of credit without the need for a further deposit, as a reward for maintaining a good payment history. As a general rule, secured credit cards always carry an annual fee although they vary a great deal, so it is worth shopping around.
How To Managing Your Secured Charge Card
Secured charge cards are a great option to consider after bankruptcy. The cards are most often issued by trusted banks who may well choose to return your deposit and allow you to maintain the card as a regular credit card after a period of good standing. Secured cards ensure that you never spend more than you can afford to repay while forcing you to save money simultaneously.
However, with high interest rates and annual fees as a standard, it is not advisable to keep a secured card on a long term basis. Secured charge cards are recommended only as a stepping stone to prove that you can responsibly manage a credit card. It is expected that after a period of roughly twelve months of making regular payments, the card issuer should be willing to offer you an unsecured credit card in order to retain your custom.
As with any financial commitment, it is important to research all of your options and compare the different secured cards that are offered. Not all banks offer a secured charge card option, instead opting for unsecured accounts with high interest rates and low credit line limits.
There are several card issuers who will treat customers well, with low fees and good customer support services, but there are also many unscrupulous lenders who will take advantage of customers with a poor credit score by charging hefty fees and enforcing monthly insurance policies. If you are depending on using a secured charge card in order to recover from bankruptcy, then you must also make sure that the card issuer reports to the major credit bureaus, otherwise you will not get the required results.
Once you have started to acquire a decent payment history on a secured card, the next step is to apply for an unsecured card. The longer you can maintain your secured charge card within your credit limit, the more likely you are to be approved for an unsecured credit card. If you can then go on to maintain a good payment record on the unsecured credit card account, you will be in a better position to apply for larger or longer term borrowings such as bank loans and mortgages.
In conclusion, a secured card can help get your finances back on track after bankruptcy or even after a major life event such as bereavement or divorce. However, they are not a long term solution and should be used only as a means to obtaining an unsecured credit card. It is also important to research all available card issuers in order to avoid those who will take advantage of borrowers with a poor credit history.