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Unsecured Credit Cards after Bankruptcy

A lot of people look for different lending options after filing for bankruptcy. This write up is aimed at disseminating some useful information on this subject.
Arjun Kulkarni Oct 8, 2018
Unsecured credit cards can improve credit. Paying credit card bills on time improves payment history and thus, credit rating. This way, credit cards improve credit rating after bankruptcy.
There are two types of credit cards - secured credit card and unsecured credit card.
The difference between secured and unsecured credit card is that the secured credit cards are tied to your bank account, which acts as a collateral to the credit card account. That is to say that if you're not able to pay the credit card bills on time, then your credit card company will adjust it with the bank account.
The second is the unsecured credit card. This comes with no collateral. And one would think that unsecured credit cards are tailor-made for people who have been bankrupt, as they may not have any assets to offer as collateral anyway. Hence these offer them the financial olive-branch which they so desperately need at the end of the bankruptcy proceedings.
Before applying, here are few things you need be careful of:
  • The original bank (creditors) involved in your chapter 7 or chapter 13 bankruptcy. It's logical that you don't go back to them to start stocking up credit.
  • Once you manage to get a credit card use as less from the credit limit as possible. Stretching spend limit too much will impact credit limit.

Interest Charges

The first thing you need to keep in mind is that the interest charges will be a lot higher. These are high because the credit card companies take you as a risky investment and since you're offering no collateral anyway, it makes you a riskier proposition from the point of view of the credit card companies.
Hence, you will be charged a phenomenal rate of interest. But you need to be patient and smart enough to hunt for the best deals.

Annual Charges

Looking at this again from the point of view of the credit card company, you - with your bad credit score and not offering collateral - are a pretty risky investment proposition again. So, they will most probably ask for more annual charges and you will have to pay a higher payment while getting a new credit card after bankruptcy.

Low Spending Limit

Your new card will doubtless come with a pretty low spending limit, which is a good thing as you ought to rein in your expenses as much as you can. But with time and regular payments, you will see your credit limit elevated over time.
This was a rough guideline on what to keep in mind while going for an unsecured credit card. As you can see, this is one of the easy ways of rebuilding credit. But getting it can be tough as not too many companies will be willing to give a credit card to someone who is bankrupt. So you might really have to search hard to find a really good deal.