Being in bankruptcy may be one of the lowest points in life. Though the process can be quite difficult, it also offers a chance to rebuild financially.
Once a bankruptcy is discharged, an individual has a clean financial slate, offering the opportunity to do things the right way this time. Filing for bankruptcy makes it more difficult to obtain credit for up to ten years.
When credit cards or loans are approved, they usually carry a much higher rate of interest and lower credit limit than the individual qualified for before the bankruptcy.
Rebuilding finances takes time and patience but by following certain steps, improvements can be made in about one year. A credit card can be used to help rebuild credit rating. There is no standard length of time that an individual must wait following a bankruptcy to be approved for a credit card. Lenders have different guidelines so some may approve an application soon after a bankruptcy, while others institute a waiting period.
After bankruptcy, some people qualify only for secured credit cards, which require them to make a deposit of ten to 100 percent of the credit limit
This money is held in escrow in case the account holder does not make minimum repayments. It is usually not possible to overspend with a secured card, making it easier for people to stay on the right financial track following bankruptcy. As repayments are made, these are reported to the credit reference agencies, improving credit rating.
Some credit card providers cater to people with damaged credit. Following bankruptcy, an individual may be approved for an unsecured credit card from one of these lenders. Comparison shopping is important because interest rates and credit limits vary and some cards have an annual fee. By finding the best deal, people can save money.
A prepaid debit card is a credit card alternative for people coming out of bankruptcy
The account holder makes a deposit to an associated bank account and can spend only up to this amount. Any individual who is concerned about controlling spending should explore this type of card. By replenishing the account with a reasonable amount of money on a periodic basis and using the card only when necessary, people can improve their credit.
Though the first credit card application following bankruptcy may not result in approval, people should not apply for too many credit cards simultaneously. Lenders view multiple applications as a red flag, indicating someone who is desperate for credit. Each time an application is completed, a credit inquiry is made, negatively affecting the credit score.
Showing that they can be trusted financially is the best way to rebuild credit rating following bankruptcy. A secured credit card or unsecured card for people with poor credit can help illustrate financial responsibility. The card will typically carry a high interest rate and have a low credit limit but this can prevent overspending. Responsible use of these credit cards after bankruptcy opens the door to less expensive credit in the future.