Many people ask me how they can get credit cards after bankruptcy. As it relates to credit restoration, one of the most important things that you can do after a bankruptcy is to begin establishing new credit immediately. There are many commonly held misconceptions that it is impossible to immediately obtain credit cards after bankruptcy. After all, you probably just included a bunch of credit cards in your bankruptcy, right? Why would a lender or bank want to issue you a credit card after bankruptcy and let you immediately rack up post bankruptcy credit card debt? Doesn’t make sense, does it?
The truth is, they are highly motivated profiteers who understand your situation better than you do. They understand that you cannot file bankruptcy again for at least 10 years and therefore cannot include their new card as bankruptcy credit card debt. So, their risk is highly minimized since you cannot write them off. Additionally, if you filed a Chapter 7 Bankruptcy and didn’t reaffirm any of your prior debts, you now don’t owe anybody any money. This increases your liquidity and cash flow providing you with a greater ability to make timely payments on your shiny new post bankruptcy credit card. Oh, yeah, and here’s the sick thing, they already know you are a credit card junkie by looking at your credit report. They can see all of the bankruptcy credit card debt that you wrote off, what the balances were, what the payments were and how long you paid on time.
Now, before I share with you the various methods to get a post bankruptcy credit cards, allow me to remind you of your new mantra: “Debt is dumb!”
The truth is that credit cards are for the financially uneducated. I know painfully, I used to be one of them. Credit cards, and especially post bankruptcy credit cards, offer a sweet seduction back into economic bondage and slavery. Before you get a credit card after bankruptcy, be sure that you have analyzed the causes that led to your bankruptcy so you don’t make the mistakes of the past. Without this reflection, history has a way of repeating itself and I don’t want to be responsible for showing you how to get post bankruptcy credit cards so you can immediately rack up post bankruptcy credit card debt and start the cycle all over again that led you to bankruptcy to begin with.
Unfortunately, the truth is that our current economic society is heavily based on credit ratings and the extension of credit. Getting a credit card after bankruptcy has a way of making you feel like you are rejoining the ranks of an upper class elite society. The key to post bankruptcy credit cards is not going into post bankruptcy credit card debt for any reason. Obtaining credit cards after bankruptcy has to be done for the sole purpose of restoring credit, not going back into debt.
In other words, if you don’t have the cash to pay for it, you cannot afford and you don’t need it. You don’t put it on a credit card and pay 29.9% compound interest which is akin to paying upwards of 3 times the amount of the item you are financing. You want to use the cards and pay them off monthly. Otherwise, you will ultimately fall victim to Parkinson’s Law once again. As it relates to obtaining credit cards after bankruptcy, Parkinson’s Law states that expenses ALWAYS rise to meet income. In other words, without proper management, credit cards after bankruptcy will always lead to revolving, compound interest, post bankruptcy credit card debt that will rise to meet your income and eventually leave you with no liquidity or reserves as you work solely for the purpose of paying off post bankruptcy credit card interest. Not too smart.
So, with that in mind, here are a few methods by which to obtain both unsecured and secured credit cards after bankruptcy:
Obviously, unsecured credit cards are better from a credit perspective because the credit account or trade line on the credit bureau doesn’t reflect that the card is “secured”. When obtaining credit cards after bankruptcy, ideally you want as many unsecured cards as you can get. Depending on the damage to your credit report, getting unsecured credit cards after bankruptcy can actually be very easy or it can be an uphill battle. The easiest way to get unsecured credit cards after bankruptcy is as follows:
1. Apply to credit card companies that specialize in credit cards designed for less than perfect credit like Orchard Bank, First Premier and Capital One.
2. Apply at your credit union if you belong to one
3. Get a family member with excellent credit to add you as an authorized signor on one of their credit card accounts
If you cannot obtain unsecured credit cards after bankruptcy, the obvious next step is to obtain secured credit cards. With a secured credit card, you front the amount of the extended line of credit in cash. It is like a forced savings account and the bank or credit card lender has no risk because they are simply lending you your own money at high compound interest rates. It is kind of stupid when you think about it, but if you want to get credit cards after bankruptcy to begin restoring your credit, you may have to go this route. There are literally hundreds if not thousands of credit card companies that will provide you with a credit card after bankruptcy. The key here is to compare the different offers and then use the round robin method so you can maximize the number of credit cards after bankruptcy that you can get.
What’s the round robin method?
When trying to get post bankruptcy credit cards or credit in general, you want to get as many accounts as you possibly can in the shortest possible time frame so you can have numerous trade lines reporting and so you can maximize the seasoning on each line. Seasoning is the length of time the account has been opening and you want as many timely payments reporting as possible. When you go to get unsecured credit cards after bankruptcy, you will be limited to the amount of available liquid capital that you can initially send to the credit card company for the secured credit card. So, what you do to maximize the number of cards you can get is to analyze all of the credit card offers to determine their cash out limits.
Ideally, you want the cards with the highest cash out limit and the lowest annual percentage rate (A.P.R.). Then, take your available funds and get the first card. When the card arrives, go max out the cash out limit and apply for card number two. Repeat the cycle until you have at least 5 cards. The key here is to understand that in so doing, you are going to artificially create after bankruptcy credit card debt, which, as previously mentioned, you do not want from either a financial planning perspective or a credit restoration perspective. Be sure that you do not unwittingly overload yourself with interest payments while obtaining the cards.
The key is to pay each of the cards off in the shortest possible time frame so you can minimize interest payments and maximize your savings since the principal payments you are making are actually forced savings account payments. After a period of time, your credit will recover to the point that you can start getting totally unsecured credit cards after bankruptcy. Then, you will slowly phase out all of the secured cards because of the fees and high interest rates that they come with, not to mention, the way they report on your credit report as “secured”.
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