Get a Credit Card After Bankruptcy
For a long time, secured credit cards were synonymous with after bankruptcy credit cards since these cards could be procured within 6 months of bankruptcy discharge. These cards required a cash collateral deposit that became the credit line for the account. The issuer sometimes rewarded the consumer by extending additional lines of credit, without requesting further cash deposits, as a compensation for timely interest payments. In addition to this, the deposit also earned interest, that was synonymous with the interest earned in a savings account. However, the greatest reward was in the form of improved credit scores that was contingent on the credit card company reporting the timely payments to the credit bureaus.
Tips
All secured cards have higher annual fees and interest rates as compared to regular unsecured cards. Hence, the consumer should try and look for a secured credit card that does not require any application fees. Otherwise there is a risk of the account opening fee, the maintenance fee and other expenses adding up and consuming the borrower’s credit line without the consumer having purchased even a single item.
The consumer should also ensure that the balance on the card is paid off entirely, from the perspective of building credit scores, since it doesn’t pay to carry forward the balance to the next month. This is because revolving credit always impacts credit scores more negatively as compared to a loan that is repaid in installments.
The consumer should verify that the issuing company reports the timely payments to the credit bureaus since building credit scores is contingent on the same. Moreover, the credit card company should not flag the card as secured while reporting to the credit bureaus, since doing so has an adverse impact on the borrower’s ability to rebuild credit scores.
Finally, the consumer should ensure that the secured credit card converts to an unsecured card within a period of 12 to 18 months. This is generally the case but there are companies that may be unwilling to allow the consumer to access a line of credit that is not collateralized with a deposit.
Unsecured Credit Cards
Unsecured credit cards or common credit cards are the way to go if a consumer wants quick credit repair. As mentioned earlier, unsecured credit cards carry lower annual fees and lower interest rates (annual percentage rate) than secured credit cards. However, due to the dearth of laws regarding usury and predatory lending practices, the interest rates on these cards is still very high. Issuers feel free to charge a high rate of interest to the consumers who are perceived risky and are interested in procuring ‘after bankruptcy credit cards’.
Tips
The consumer should look for a credit card that has a low annual fee. This is because a whopping annual fee will result in the borrower having to pay a hefty amount just for the sake of having a credit card despite insufficient use. There are a number of issuers that fulfill this requirement but make up for the low annual fee by levying a number of fees that nullify the impact of the low annual fees.
One time fees like account opening fee and program participation fee, do not seem like a big deal to a casual observer but these fees, in addition to the account maintenance fees that are generally paid on a monthly basis, tend to eat into the initial credit line. The net result is a very small line of credit. Moreover, the consumer has to pay interest on the fees since these are charged to the credit card.
Although, a card with a lower rate of interest is desirable, the interest rate on the card or the APR does not matter if people pay off the entire balance on the credit card. A number of after bankruptcy credit card providers also charge additional fees for reviewing the account and increasing the borrower’s credit limit.
Payroll Deduction Credit Cards
These credit cards work by allowing the amount of money, that is spent by the card holder, to be automatically deducted from his/her paycheck over a period of two months, thus preventing interest accumulation and late fees. Consumers, who otherwise find it difficult to obtain a credit card, can procure a payroll deduction credit card provided they have a job. Consumers should be full-time employees for a minimum period of six months or so and the annual base salary of the employees will determine their credit limits. These cards are tied to the consumers’ job, and hence they are not popular in an economy wherein a number of people are still unemployed.
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