The last thing bankruptcy filers need is a credit card. However, it's the best way to start. There are good credit cards out there; many are made for building credit and keep you from overspending. Choosing a credit card after bankruptcy is about finding one with these traits:
- Look for credit cards that allow you to go to a variety of places. Choose a bankcard that is a visa, MasterCard, discover or American express. Store cards limit you to that store.
- Make sure the credit card reports to Equifax, Experian and TransUnion. That's why bankcards are recommended.
- Read credit card rates and fees. Find cards that doesn't have variable or hidden/teaser rates. The last thing you need is surprises. The card should tell you those rates upfront. Don't pick a card with application or annual fees. Look out for late payment fees and penalty fees too. Remove cards with high fees or rates. You will spend more money making them rich than to build your credit.
- Read credit card policies. There's so much information in these polices from terms of use to privacy policy. Go over this information with a professional so you know what you're getting into. Like rates and fees, you don't want any surprises.
- Choose a secured card. While unsecured cards are great too, secured cards are the better option. They have a small credit limit, but they also want a deposit of $1000 or less to go with it. Between a few months and a year, you will get the money back. The limit rises when trust is established. Prepaid or debit charge cards are not real "credit cards" because they have no effect on credit score. You can add a second card (secured, unsecured, store, etc.) when you can handle the first.
Don't choose the first card in the mail or cards that targets bad credit consumers. Those cards have high fees or frauds. There are plenty of credit cards that help consumers build credit; it's not limited to the ones in the mail. Research thoroughly and get the information about the cards before making a decision. Here's why: Each credit application (accepted or rejected) degrades your credit score. Apply to one or two credit cards you're most interested. Find a credit card that charges you every month. The best cards are credit cards with a grace or interest-free period between the charge and billing date.
The goal of a credit card is to pay off debt. Interest and other charges come into play when you don't pay in full monthly or you don't pay on time. Paying in full on time monthly is about charging small payments to the credit card. You will be able to pay those off and slowly build good credit. That one slip up is going to be the beginning of that downward spiral that gave you uncontrollable debt in the first place. Don't spend to the max limit either. Have at least two months' worth of money saved up before applying for a credit card. Review credit scores every month to make sure nothing is out of place. Contact us for more information.
