Can Credit Cards Help you Establish Credit After Bankruptcy?

The short and simple answer is yes and no. The detailed answer is that it depends on how you use the credit card and which credit card you choose to use. If your credit card is over two years old this article may not apply to you. Most credit card companies will issue fair credit - credit cards to people outside of bankruptcy for more than two years. You may want to avoid applying to the same companies you included in your bankruptcy though.

If you are trying to establish credit after bankruptcy within two years a credit card can be a great way to begin. Before we talk about specifics let's begin with a general understanding about your situation. You have just recently filed bankruptcy on a number of creditors, and in any new creditor's eyes your represent a high credit risk. For this reason, it's logical to expect that you will have to pay the highest interest rates. So our goal should be to re-build our credit with the least amount of cost out of our pocket.

There are unsecured credit cards available that will issue you credit almost immediately after a bankruptcy. In my opinion these types of credit cards are a rip-off and probably a poor step to better credit after bankruptcy. Most of these cards will only start you off with a $300 credit limit and charge you $150 worth of fees on it with your first bill. You are well of 35% of your credit limit on your first bill! You might as well have applied for a secured credit card with a third of the fees.

In my opinion a secured credit card is the way to go. I know you have to send in $300 bucks to get started but the benefits far out-weigh the unsecured cards. Secured credit cards like the Bank of America Secured Visa® Platinum Card offer low annual fees and full credit card benefits from day one. The only downside is that you do have to send in your credit limit. Keep in mind, our goal is to re-build our credit with the least amount of money and this card is the answer.

One common misconception is that you have to make charges and on your new credit card and pay them off to build up your credit. This simply is not true. Credit bureaus actually devalue your credit score once you exceed 35% of your credit limit. When future creditors look at your credit bureau they will see how long you have had the card, your credit balance and if you have been late. The credit bureau does not reference your charges in the past, only your current balance. For this reason I suggest that you open up the credit card after bankruptcy and leave it alone.

Another advantage secured credit cards after bankruptcy is the ability to raise your limit by making additional deposits. When creditors see a credit card balance of $300 bucks it's pretty apparent what kind of credit card it is. Other than that they have no idea that it is a secured credit card. So if you treat your secured credit card as a savings account and send funds in to raise your credit limit you can accomplish a number of goals.