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How to Get a Credit Card after Bankruptcy

Aparna Iyer Oct 6, 2018
Applying for a credit card after bankruptcy can be a tough ordeal, even though it helps consumers to rebuild their credit score. Read to know about the available options.
Any form of credit can be hard to come by for people who had to go through the unpleasant experience of filing for bankruptcy due to insurmountable debts. This is because the credit score and history get negatively impacted for many years due to such an action. Also, enactment of some laws have created confusion regarding the entire process.

Changes in the Law

A change in the bankruptcy code in the year 2005, made it mandatory for consumers to wait for a certain length of time before filing under the same or a different chapter. This law encouraged credit card companies to offer cards to consumers after a discharge. In May 2009, a new law known as Credit Cardholders' Bill of Rights was enacted.
Although it aimed to protect consumers from unjustified charges, it imposed a number of restrictions on issuers. The new law led to card issuers cherry-picking new users based on their credit history. Individuals with adverse credit report had to pay higher joining and annual fees, and offered a much higher introductory APR (annual percentage rate).

Popular Options after Bankruptcy

It's important to note that ex-petitioners' credit scores would have plummeted by 150 - 200 points as a consequence of filing the same. A credit card can help to rebuild their credit, since paying off the entire amount, on a monthly basis, will improve the credit score in the long run.

Secured Credit Card

Applying for a secured credit card is advised as you can get one approved in 6 months after discharge. It is secured with a cash deposit, eliminating any risk to the issuer. It would be prudent to pay off the entire bill amount from the perspective of improving your score.
The best part is that most of these instruments get converted to unsecured in 12 - 18 months' time, if the payments have been timely. The cardholder should ensure that the payment history gets reported to the credit bureaus on a regular basis.

Payroll Deduction Card

A consumer can be approved for a payroll deduction card, regardless of his/her credit history, since any purchases made are automatically deducted from the person's salary over a period of 2 months. Low credit risk for the issuer translates into low transaction costs for the cardholder.
They can help enforce discipline on the spending habits since the salary determines the credit limit. An additional feature is that micro loans can be availed without any underwriting expense.

Corporate Card

Employers may sign up their employees for corporate credit cards. Although, checks are conducted by the issuer before approval, the payment is essentially the employer's responsibility. Thus, an employee with bad credit may get approved for this card.
However, they may not show up on the employee's credit report. If they do, the employee's report can get impacted if the employer doesn't make timely payments.