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Should people get credit cards after bankruptcy?

Bankruptcy often feels like a massive blow to your finances between selling assets and addressing outstanding debts. The last thing on your mind is probably rebuilding credit and possibly getting a new credit card.

However, a significant step after bankruptcy is building up your credit score. The main avenue to recover a credit score is to get an affordable credit card and pay off the bills on time.

Bankruptcy and credit scores

Getting a credit card after extreme debt may seem counter-intuitive, but it’s critical to build back the credit as soon as possible after bankruptcy — especially after the hit bankruptcy takes on credit. There will be a specific amount of time where your credit is frozen after filing:

  • Chapter 7 — your assets will be liquidated and used to pay back creditors. Generally, you can begin rebuilding your credit as soon as your discharge has been entered by the Court – about 90-100 days after you filed your case.
  • Chapter 13 — You don’t have to liquidate assets in this chapter, but you are paying back debts over a three or five-year period. You can begin rebuilding your credit after the Chapter 13 discharge is entered.

If your credit was very low (from all the late pays and low pays) when you filed your bankruptcy, your score is usually higher when you get your discharge. And within 12 months after filing with otherwise good payment records, your score can be as much as 100 or more points higher.

Applications for credit cards

No matter your credit score, credit card companies will flock to bankruptcy participants after they are discharged. It will be overwhelming to decide which card will be the right card for you, but there are several factors to consider:

  • Your long-term financial goals
  • Previous behaviors that lead to debt
  • Your current credit report
  • Your credit mix — the combination of different credit accounts
  • Your budget for a line of credit
  • Interest rates and current fees

Once you thoroughly go through credit cards and decide which one works for you, you should take time to apply and work up to a higher credit limit over several years. It will allow you to build credit at a slower, more reasonable pace after bankruptcy.

If you continue to pay your bills on time and use your card responsibility, you will see credit improvement. A higher credit score may allow you to change credit cards or stay financially stable into the future.

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