Getting A Credit Card After Filing For Bankruptcy

Can I Get a Credit Card After Bankruptcy?

You can still qualify for a credit card after bankruptcy, but your options may be limited based on your credit score and cards' approval requirements.

How Bankruptcy Affects Credit

A bankruptcy filing is the most severe negative event that can appear in a credit report, and it can do deep, long-lasting damage to your credit scores.

A Chapter 7 bankruptcy, which eliminates all your debts, stays on your credit report for up to 10 years. A Chapter 13 bankruptcy, which restructures your debts and provides creditors partial repayment, will remain on your credit report for up to seven years.

When you file for bankruptcy, the best your creditors can expect to collect is a fraction of the money you owe them. (In a Chapter 7 filing, creditors may get nothing at all.) It's understandable, then, that bankruptcy typically makes lenders wary of issuing you new credit. Some lenders turn down any credit applicant with a bankruptcy on their credit report. Other lenders will consider applicants with older bankruptcy entries, but typically charge high interest rates and fees because they consider bankruptcy filers risky borrowers.

As long as a bankruptcy appears on your credit reports, it will tend to lower your credit scores. But its impact on your scores will diminish over time. Credit scoring models such as those from FICO and VantageScore® give new information greater weight than older information, so adopting good credit habits can help you start rebuilding your credit scores, even immediately after you've filed for bankruptcy.

Key steps to improving credit scores, after bankruptcy or under any other circumstances, include avoiding excessive debt and high card balances and, most importantly, establishing a record of steady, on-time debt payments on your credit reports. So how do you rack up steady payments if bankruptcy has made lenders reluctant to work with you? The key is to focus on credit cards for people with less-than-ideal credit, or even cards that require no credit at all.

Getting a Credit Card After Bankruptcy

Your first step toward getting a credit card after bankruptcy should be checking your credit report and credit score so you know where you stand when researching various cards' approval requirements. If, like many others who file for bankruptcy, you have credit reports that include late or missed debt payments, maxed-out credit cards, or accounts that have been turned over to collections agencies, your credit scores may have dropped into the fair or poor credit range even before taking a hit from the bankruptcy. While that may make it tough to get a conventional credit card or loan, there are strategies that can help you start rebuilding credit following a bankruptcy.

When looking for the right credit card, your best bet will likely be a secured credit card, which requires you to put down a cash deposit. The deposit amount typically equals the card's borrowing limit, and if you fail to pay your card balance as agreed, the card issuer can take your deposit to cover the debt. Otherwise, a secured card works the same as a conventional card: You can make purchases up to the borrowing limit, repay them over time as long as you make a minimum monthly payment, and you'll be charged interest on any unpaid balance you carry forward month to month.

The chief advantage of secured cards is that they usually have lower interest rates and fees than unsecured cards designed for people with poor credit. The main disadvantage of secured cards is low borrowing limits that restrict the types of purchases you can make. But when you're rebuilding credit after bankruptcy, that can also be seen as an advantage: Low spending limits can make it relatively easy to pay your balance in full each month.

Borrowing limits on unsecured cards for users with poor credit tend to be low as well. The chief advantage of unsecured cards is that they don't tie up any of your cash in the form of a deposit—and if you can manage to keep balances low enough to pay off in full every month, you'll avoid interest charges, so their high interest rates won't matter much.

Tips for Using Credit Cards After Bankruptcy

Bankruptcy is a painful process but can be a meaningful way to gain a clean slate on your finances and a chance to rework your approach to credit management. If you resolve to keep credit purchases at a level you can pay off quickly, and avoid excessive debt, your credit standing and credit scores should gradually but steadily improve. Paying your credit card balance in full every month will also help you avoid interest charges and costly late fees.

Even more important is to pay your credit card bills on time. Payment history is the most significant factor that determines your FICO® Score☉ , so steady on-time payments will help increase your score, while late or missed payments can seriously lower them.

Most credit card issuers offer tools to help you avoid late payments, such as email and text alerts, and the ability to schedule automatic payments every month. Taking advantage of these tools, or using any other method that reminds you to pay your bills on time—smartphone reminders, sticky notes, a desk calendar—can be vital to rebuilding credit after bankruptcy.

How to Build Credit After Bankruptcy

Once your bankruptcy is discharged and you've opened a new credit account that you manage responsibly, there are still other steps you can take to help rebuild your credit after bankruptcy:

Become an authorized user. If you don't qualify for an unsecured credit card, and cannot afford a secured card, you may be able to begin accumulating a positive payment history as an authorized user on a friend's or family member's credit card account. The account will appear on your credit reports, but the primary cardholder is responsible for making payments to the card issuer. If the primary user has stellar credit and makes all payments on time, your credit scores are likely to improve; if the primary user has a record of late payments or a large amount of debt, however, that won't do your scores any good.
Consider a credit-builder loan. These are small personal loans, most commonly offered by credit unions, specifically designed to help people improve their credit. The financial institution issues you a small loan—typically a few hundred dollars or up to $1,000—and places that sum in a special interest-bearing savings account in your name. You cannot touch that money until you pay off the loan in full, by making regular monthly payments, typically for a period of no more than 12 months.
When you've paid off the loan (with interest), the money in the savings account is yours. Assuming you make all your payments on time, you'll have accumulated a series of positive payment entries on your credit reports, which will tend to increase your credit scores. If you're considering a credit-builder loan, make sure the lender reports payments to all three credit bureaus (Experian, TransUnion and Equifax) so your positive payment history benefits all your credit reports.
Monitor your credit reports and credit scores. Checking your credit as it improves can help motivate you to keep managing your finances responsibly. In addition, it can also alert you to suspicious activity on your credit accounts—a possible warning sign of fraud and identity theft.

You can check your credit reports from all three credit bureaus for free at AnnualCreditReport.com.

When to apply for a credit card after bankruptcy

After a bankruptcy filing, the task of repairing your credit begins. But how soon can you apply for new credit? It depends on the type of bankruptcy you filed because your bankruptcy must first be discharged. This can take as little as six months or as long as five years.

A Bankruptcy Must Be Discharged Before You Can Apply for a New Card

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 receive approval from the court.

Credit Card Eligibility

Regardless of which type or specific circumstances, filing for bankruptcy will have a lasting impact on your credit score. 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 remain 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. It may feel like a catch-22, since even after approval you likely won’t qualify for many cards like those offering rich rewards or premium perks.

The best move regardless is to apply for a card designed for someone rebuilding credit. A secured card is ideal for this purpose and even with a fresh bankruptcy you may be able to receive approval. With a secured card, the credit limit you receive is typically equal to the amount of the security deposit you put down.

A handful of unsecured card issuers won’t check your credit score or may be 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, so be careful to check while shopping. Secured cards from major issuers tend to have lower costs.

After Getting a Credit Card

With your new card, the work to improve your credit doesn’t stop. If you focus on improving your credit score you may eventually qualify for better credit cards and see more favorable rates on other types of loans, like car loans, mortgages or student loan payments.

Credit Card Strategies After Bankruptcy

There are several steps you can take to get on a path towards better credit:

Make sure to pay your bills on time every month. Payment history is the single biggest factor affecting your credit, accounting for approximately 35% of your FICO Score.
Make a plan to pay off your existing debts. 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 keep your credit utilization low.
Consider programs that count alternative payment behavior. It may be worthwhile to sign up for something like Experian Boost, a free program that counts your payment behavior from a linked checking account you use to pay your utilities, 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.
Get a credit-builder or secured card and use it responsibly. As you build a history of good payment behavior, your credit profile will continue to improve.
Be patient. Rebuilding credit takes time and effort. While your credit score may not rise right away, it can happen steadily over time as you practice responsible spending habits.

The Bottom Line

Your bankruptcy must be fully discharged before you can apply for a new credit card. If you file chapter 7 bankruptcy, your debt will likely be discharged in four to six months. If you file chapter 13 bankruptcy, it will be three to five years.

Applying for new credit is key to rebuilding your score, but it’s important to have a plan to use your credit responsibly. With your new card, be sure to make healthy habits like paying on time each month and keeping your balances low.