How to get a Credit Card After Chapter 7 Bankruptcy: 2 ways

Chapter-7 bankruptcy is a kind of bankruptcy where your credit debt is discharged and your assets that are not covered in Exempt Property are sold to cover the debt you owe to your creditor(s). 

Bankruptcy is especially dangerous to the credit score and chapter-7 bankruptcy sticks on your credit reports for 10 years. This not only makes borrowing incredibly hard and costly but also makes it difficult for you to get or reobtain a top tier credit card. Getting credit cards after bankruptcy is like starting fresh on building your credit score except that you’d also have to make up for the negatives in your credit report. 

But when it comes to whether you can get a credit card after chapter-7 bankruptcy! The answer is yes, It’s when the chapter-7 bankruptcy is discharged that you can apply for a credit card which takes about 4 to 6 months. But the damage done to your credit due to chapter-7 bankruptcy would take longer to undo. 

Another thing you’ll have to contend with is credit inquiries. Credit inquiries will further lower your score, albeit slightly, every time you apply for any credit card. This is universal for all applicants but just another disadvantage for those with a post-bankruptcy credit score. 

Enough background, let’s get down to how you can get a credit card after a chapter-7 on your credit report. 

2 Ways to Get a Credit Card After Chapter-7 Bankruptcy

You need to realize that your primary goal after a chapter-7 would be to rebuild your credit. Bankruptcy is disastrous for credit score and you’d have a hard time getting a decent credit card. Your options would be limited as you’d have to start from scratch. Here’s two ways you can get a credit card. 

1- Secured Credit Card

Your best bet would be getting a secured credit card. Secured cards as the name suggests, are credit cards that are secured, as far as your debt liability goes since these cards require you to deposit a security/collateral to satisfy creditors due to your bad credit report so the deposited security would act as a guarantee if you’re unable to pay your credit debt. The collateral would be reflected in your credit limit. You can look into high-limit secured credit cards if you’re a frequent credit spender. 

Secured credit cards are easier to get after a chapter-7 and are helpful in rebuilding credit score. Once you’re able to satisfy credit analysts by regular debt payment, you’d qualify for transition to an unsecured credit card and your security would be returned to you. 

2- Get a Cosigner

If you’ve financially recovered and don’t want to go for a secured credit card, you can get someone with a good credit score to cosign an unsecured credit card for you. This way, you can get an unsecured credit card of your own and start increasing your credit score through best credit practices. On the other hand, the debt liability legally falls on the cosigner if you default on your credit debt. 

However, it’s extremely difficult to find a credit card offer that allows cosigning. As of now, only two creditors offer credit cards with an option for co-signing. These are Bank of America (NYSE:BAC) and US Bancorp (NYSE:USB).

Once you get hold of a secured credit card or a cosigner, the next step is to rebuild your credit. How long it takes to get a good credit card after chapter 7 bankruptcy depends on how well you’re able to build your credit. Here are the best practices you need to follow for the purpose. 

Best Ways to Rebuild Credit after Chapter-7 Bankruptcy 

1- Pay Your Bills on Time

One of the best ways to rebuild credit after bankruptcy is to pay your bills and debts on time and that includes not only your credit bills but all of the bills. Payments are the most significant indicator on your credit reports. It accounts for 35% in FICO Score, which is used by most creditors to determine your credit score. 

2- Keep Credit Utilization below or at 30% of Credit Limit

The golden rule for credit utilization is to keep your credit expenditures below or at 30% of your credit limit. Exceeding the limit causes reduction in the credit score and since every point counts after bankruptcy, this is an important practice to keep in mind. If your expenses are high, try getting multiple secured credit cards with high limits. 

However, hard inquiries can reduce your credit score by some points when applying for multiple credit cards. More on this later. If you can cover your debts, spending more through credit cards has a significant impact in increasing your credit score. Credit spending can increase your credit score by 30%, provided that you pay your bills on time. 

3- Make Credit Mix Work in Your Favor

According to the FICO Score, credit mix accounts for 10% of the credit score. Having a mix of credit like bank loans, credit card(s) and mortgages and a successful reputation for timely payments increases your credit score by 10%.

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Habib Ur Rehman
Habib Ur Rehman
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