Life After Bankruptcy: Getting a Credit Card Again

You filed for bankruptcy. Now, your creditworthiness stinks and you’re wondering how your financial life will ever recover. Can you even get a credit card? The short answer is yes. But your options are limited and you must time it right.

Before you fill out a credit card application, consider if you’re ready to handle the responsibility. Make sure you have a stable job and the ability to meet your other bills like rent and utilities.

If bad financial decisions led to your bankruptcy, skip the credit cards for right now. “Be honest with yourself, maybe a credit card is not right for you,” says credit expert John Ulzheimer. But if unexpected events like a divorce or job loss derailed your finances after years of pristine money management, maybe you can handle a credit card again. Here’s how.

Timing is everything

Before you can get a credit card, your bankruptcy has to be discharged. “No lender in their right mind will extend credit to an active or open bankruptcy,” says Ulzheimer. “Because the account then can be included in the bankruptcy.”

When your bankruptcy is discharged depends on the type of filing you make. A Chapter 7 bankruptcy, where the debts are wiped away after the liquidation of certain assets, takes about three months to be discharged after the initial filing. A Chapter 13 bankruptcy, which entails a three- to five-year partial repayment plan to creditors, takes much longer. It’s discharged only after the completion of the repayment plan.

Your options, bad and good

After your discharge, the cards you can get will be limited. That’s because a recent bankruptcy is a big stain on your credit report and will drag down your credit score for some time. “Be realistic. You’re not getting a platinum card,” Ulzheimer says. “And if you discharge debt with a card issuer, don’t expect to get a card from that issuer again. Issuers have long memories.”

You may actually receive a host of credit card offerings from subprime lenders, who know you’re restricted from discharging another bankruptcy any time soon. But these credit cards come with high interest rates, in the mid-20s and above, and low limits, in the hundreds of dollars. Their fees are high, and numerous; some may charge annual fees, monthly servicing fees, and an initial processing fee to just open the card.

Instead of shelling out all that money on fees, consider putting it toward a deposit for a secured credit card, a card type that’s designed for consumers with bad or no credit. Major card issuers offer these cards, and some even come with rewards programs. The cards are backed by a security you must put down, typically between $200 and $1,000. The credit limit generally equals the security deposit amount, but there are some cards that require only a nominal deposit for a larger credit limit. Secured cards have low limits and high APRs in the 20s, but many don’t charge annual fees like the unsecured ones.

Another good option is to lean on a partner, parent or close family member with a credit card. Ask if you can be added as an authorized user on a card with a high limit, low balance, and long, positive payment history. If you plan to spend on the card, get permission ahead of time and ask the primary cardholder to set spending parameters. This is important because, as an authorized user, you’re not liable for any of the debt on the card. Only the primary cardholder is legally responsible for payments.

Your credit score

One of the other benefits of being an authorized user is that the card’s good payment history is added to your credit report, which eventually will improve your creditworthiness.

Use secured cards smartly, spending no more than 30% of the credit limit and paying off the entire balance every month, to help your credit score down the road. Some lenders may turn the card into an unsecured one after a consistent period of good payment history.

But keep expectations real when it comes to your credit score. It won’t get materially better until your bankruptcy and any delinquent accounts associated with it fall off your credit report in 7 to 10 years, says Ulzheimer. In this case, time is the best remedy.