When Can I Apply For A Credit Card After Bankruptcy?
Filing for bankruptcy can put a big dent in your credit score and it will take some time to recover. In spite of the damage to your score, it’s still possible to get a credit card, but you’ll only be eligible for secured cards or cards designed for those with poor or no credit.
Your best bet is to apply for a card as soon as you can after your bankruptcy is discharged, or completed, so you can start rebuilding your credit right away.
If you’ve recently filed for bankruptcy, here’s what you need to know about applying for a credit card.
The Type of Bankruptcy Counts
There are two basic types of personal bankruptcies:
- Chapter 7. This is where all of your debts are eliminated and any assets you own that aren’t exempt will be sold off and used towards your debts. This will wipe out what you owe your creditors but also anything you own of any value. Chapter 7 allows for a fresh start, as once the bankruptcy is discharged, or completed, you’ll no longer have any liability towards creditors, but your credit score will be severely damaged.
- Chapter 13. With this type of bankruptcy, your debts are restructured, which means that you and the creditor come to an agreement over how much of the debt you will repay within a time frame of three to five years. Any remaining portion of your debt is forgiven. Although this type of bankruptcy is less damaging to your credit, it still has a strong negative effect.
Your Bankruptcy Has to Be Discharged Before You Can Apply
You cannot apply for any new lines of credit—including a credit card—while your bankruptcy proceedings are in progress without court approval. The amount of time it takes to settle and complete your bankruptcy proceedings will determine when you can apply for a credit card.
A Chapter 7 bankruptcy takes approximately four to six months after the initial filing to be completed and your debts discharged. After that, you can apply for a credit card.
A Chapter 13 bankruptcy, however, can take between three to five years as it’s a restructuring of your debt that you pay off over time. Only after you’ve made your last payment will your bankruptcy be discharged. Until then, you’ll have to wait that entire period of time before applying for a credit card.
You’ll Only Be Eligible for Certain Cards
Filing for bankruptcy, regardless of which type and the circumstances, will have a lasting impact on your credit score. And, a bankruptcy will show on your credit report for a significant amount of time. A Chapter 7 bankruptcy will stay on your credit report for 10 years and a Chapter 13 will stay on your report for up to seven years.
With a less-than-stellar credit score, responsible use of a credit card can help rebuild your score. But it may seem like a Catch-22 since you won’t qualify for many cards like those offering rich rewards or premium perks.
The best move is to apply for a card designed for someone looking to build their credit. A secured card is an ideal card for this purpose and even with a fresh bankruptcy you may be able to get approved. With a secured card, the credit limit you receive is typically equal to the amount of the security deposit you put down.
There are also a handful of unsecured cards that won’t check your credit score or are willing to extend a line of credit even to someone with a blemished credit history. These cards typically come laden with fees and sky-high rates. Secured cards tend to have lower costs.
The Work Doesn’t Stop When You Get a Credit Card
With your new card, you should focus on improving your credit score so you can eventually qualify for better credit cards and get more favorable rates on other types of loans, like car loans, mortgages or student loan payments.
Make sure to pay your bills on time, every month, as that’s the single biggest factor affecting your score, accounting for approximately 35% of your FICO credit score. The amount of total credit you use as a percentage of your credit limit also weighs in at 30% of your score, making it a worthy goal to try to keep your credit utilization low.
You may also want to consider using a program like Experian Boost, a free program which counts your payment behavior from your linked checking account that you use to pay your utility, cell phone and video streaming media plans. Or use it in conjunction with American Express’ free Score Goals program, which maps out a blueprint of credit-building actions to help you achieve a better credit profile over time.