After bankruptcy, it may be harder to get new credit, but not impossible.
With the right steps, you can build your credit back up and eventually get yourself a credit card. While it won’t happen overnight, typically within 12 months, those that file bankruptcy are able to get another credit card.
How Bankruptcy Affects Your Credit
Bankruptcy lowers your credit score anywhere between 160 and 220 points. Just how much it decreases depends on your credit score before you filed for bankruptcy, as well as the type of bankruptcy that you file. While a bankruptcy stays on your credit for as long as ten years, over time, the damage to your credit score decreases.
Because your score drops so much initially, you may have trouble getting new credit right afterward, including a new credit card. You have to rebuild your credit and give lenders a reason to trust you again.
How Long Does it Take to Rebuild credit?
Rebuilding your credit may take a few months or as long as a year – it depends on how fast you work. Your task is to show lenders that you are a good borrower. You need to secure other types of credit that you are able to pay back on time. This demonstrates to the credit bureaus that you’ve fixed the problem and are financially responsible once again.
What are the Alternatives to Credit Cards?
Right off the bat, you won’t get a credit card, or at least most people won’t. Credit cards are unsecured, meaning the lender doesn’t have any collateral to fall back on if you default. But, you can apply for a secured credit card right away.
A secured credit card has a credit line equal to the deposit you put down on it. If you put down a $500 security deposit, you’ll have a $500 secured credit card. You can use it just like an unsecured card. If you fail to make your payment on time, the credit card company will take the money from your security deposit, aka the collateral.
Other alternatives to a credit card after bankruptcy include:
Become an authorized user
If you have a close friend or family with good credit, consider asking if you can be added to their account as an authorized user. Make sure the credit card company reports authorized users to the credit bureau, and you’ll slowly build credit thanks to your family member or friend.
Get a store credit card
Store credit cards are often easier to obtain as well. While you can only use them at the specific store they are for, it is a great way to build credit.
Credit builder loan
Like a secured credit card, the credit builder loan has a deposit equal to the loan amount. You make payments regularly, like any other loan. Once you pay the loan off, the bank returns your security deposit, and hopefully, you have a thicker credit file and higher credit score.
After you rebuild your credit, you may be eligible for an unsecured credit card with a low credit line. Make sure you always make your payments on time and don’t charge what you can’t afford. With proper use, a credit card can help you continue to build your credit score and your good financial reputation.