A Guide to Using Credit Cards after Bankruptcy

Going through bankruptcy may be a traumatic experience personally, emotionally and financially, but it is not the end of the roads in any of those areas. As you rebuild your financial foundation, these simple principles can help you restore your credit and begin judiciously using credit cards again.

You might think that receiving a new credit card when you have a bankruptcy in your financial history is impossible. While it may be challenging, it is certainly not impossible; in fact, using a credit card wisely can help you rebuild your good name and credit rating.

First, if you have some credit still available to you during the bankruptcy proceedings, you should generally not use it. If a credit card company believes that you deliberately ran up charges before or during bankruptcy with the expectation that you would not have to pay the debt back, they may dispute the discharge of the debt, leaving you in a worse financial position afterwards. In addition, you should wait until the bankruptcy process has been completed before attempting to secure a new credit card. Your attorney may advise you differently in some unique circumstances, but most of the time, applying for a new credit card too early will only hurt your credit rating plus it could further hurt your situation during the bankruptcy proceedings.

In most cases, you will be able to get a secured credit card immediately after your bankruptcy process is complete. Secured cards require you to place a sum of money on file with the credit card company as a deposit to ensure that at all or most of the balance will be repaid if you run into financial difficulties again. The size of the deposit and the details of your situation will determine how much credit you have available to you with a secured credit card. This type of card can be a good first stepping stone to help you reestablish yourself financially. Some people may recommend applying for a prepaid credit card; in most cases, however, these cards (which are little more than reloadable gift cards) will do you no good in the long run because they generally do not impact your credit rating. They may be useful simply for convenience reasons in the short term, but a secured credit card will be far more helpful in the long term.

When choosing a secured credit card, make sure you select one that will report your status and payment history on a monthly basis to all three of the major credit monitoring agencies: Experian, Equifax and TransUnion. This will ensure that your hard work to rebuild your credit pays off as quickly as possible.

To further boost the positive impact to your credit rating, avoid using a significant amount of your new cards credit limit. Even if you pay it off every month, this can harm your score. Ideally, you should try to never let your balance pass about 15 percent of your available total before you pay it off. Above all, be extremely careful not to miss any of your payments. Besides the high penalties and late fees you will then owe, the late payment will likely set you back significantly in your credit repair efforts.

Sam Jones, the author, has been lookin at credit card help on uSwitch to try and work out what the best options are for consumers looking to rebuild their credit card ratings after facing bankruptcy or other financial difficulties.

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