Bankruptcy lawyers might tell you that filing for bankruptcy offers a fresh start. However, it doesn’t feel that way when you’re applying for credit cards after bankruptcy.
“Credit card companies are wary before and after a bankruptcy discharges,” said Katie Ross, education and development manager for American Consumer Credit Counseling. “[A bankruptcy] tells a lender or card issuer that you have failed to meet your financial obligations.”
What’s more, predatory lenders know your options are limited and swoop in with offers of guaranteed approval. But such offers often come with outrageous fees and interest rates.
Credit cards are great for rebuilding credit after bankruptcy. However, you have to choose wisely. Here are some rules to live by.
How to select the best credit cards after bankruptcy
To select the best credit cards after bankruptcy, make sure you follow these tips.
1. Don’t take the first credit card offer that comes your way
Credit bureaus don’t just gather and store your credit information; they also sell it to credit card companies and other financial institutions.
So, once your bankruptcy has been discharged and your credit report has changed, expect to get a flood of preapproval offers from credit card companies. Some of these offers might not be too bad, but others can be downright predatory.
For example, Credit One Bank offers unsecured credit cards after bankruptcy. These cards don’t require a security deposit, but you might pay an ongoing annual fee of up to $99. What’s more, you might not get a grace period between your statement date and due date, which is standard for all major credit card companies.
Even if the first offer you see is a good one, there’s no guarantee you’ll get approved. Some credit card companies have a hard-and-fast rule against approving an application if you’ve gone through a bankruptcy. So, double-check with the credit card company before applying.
2. Go for secured credit cards first
Lenders that offer unsecured credit cards after bankruptcy make up for the risk with high fees and interest, not to mention terrible terms and conditions.
A secured credit card functions like a conventional credit card. The only difference is the security deposit, which is usually equal to your desired credit limit. This deposit acts as collateral in case you default on your payments.
Putting up a security deposit might not be ideal, especially if you’re struggling to make ends meet. But in the long run, it’s worth avoiding a predatory product. Most credit card companies return your deposit when you close your account. And some, such as the Discover it Secured, offer to give it back earlier.
3. Pick credit cards with worthwhile features
“It will be difficult to work with banks after a bankruptcy,” said Ross. “And for those that will work with you, the terms will be less than adequate.”
That said, not all credit cards after bankruptcy are terrible. And some offer features that rival those of much better credit cards.
For example, the Discover it Secured credit card offers cash-back rewards. You’ll get 2 percent cash back at restaurants and gas stations on up to $1,000 in combined purchases each quarter and 1 percent cash back everywhere else.
Plus, Discover will double the cash back you earn the first year, so your base rewards rate is effectively 2 percent. That’s a higher rewards rate than you’ll find on many credit cards reserved for people with excellent credit. The card also charges no annual fee.
Another secured card, the First Progress Platinum Prestige, offers a 9.99% APR. That’s much lower than the average 14.89% APR for credit cards that assess interest, according to the Federal Reserve. This card does charge an annual fee of $49, however.
Quick tips for rebuilding credit after bankruptcy
Rebuilding credit after bankruptcy won’t take forever. You’ll soon be eligible to apply for better credit cards and get your deposit back.
To help you speed up the process, here are a few tips to build your credit faster.
Keep your balance low
Your credit utilization, which is calculated by dividing your balance by your credit limit, is a key element in your credit score. Try to keep it below 30 percent each month when your statement ends.
Pay off your balance on time and in full
Carrying a balance from month to month doesn’t help your credit, but paying on time does.
Avoid interest and rebuild your credit by paying off your balance in full by your due date each month.
Don’t borrow too much too quickly
The fact that you can start borrowing again doesn’t mean you should.
Taking on too much debt after bankruptcy can put you right back where you started, hurting your financial future and credit history.
Ease into new credit cards after bankruptcy
It’s not easy to get excited about applying for credit cards after bankruptcy. You won’t find many secured credit cards that offer rewards at all, let alone a sign-up bonus.
But as you find the right credit card and start rebuilding your credit, it’ll be easier to qualify for a better card before you know it. In the meantime, stick with one card. Adding more cards to the mix might boost your credit slightly, but it likely isn’t worth the extra temptation to spend.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|