The last point I touched on in Wednesday’s post on rebuilding credit after filing Chapter 7 or Chapter 13 bankruptcy was to apply for a secured credit card, which works like a prepaid credit card in the sense that you deposit money in your account and use the card like a debit card. While this is certainly a “necessary evil” as part of rebuilding credit, an individual who just had his or her bankruptcy discharged needs to take extreme caution when filling out any credit card application.
First of all, you should wait until you can afford to pay a credit card bill before applying for any new accounts. As I said on Wednesday, you will receive multiple offers from lenders that are anxious to extend you credit. If you have just filed bankruptcy, these lenders are fully aware that any new debt you amass will not be discharged through another bankruptcy, since you cannot file again for at least eight years.
It is extremely important to read all the terms and conditions of any new credit card offer you receive. Many of these companies may make claims about the first 90 days, six months or even first year being interest-free, but will then charge you the full interest for the entire time period on any purchase that is not paid off entirely.
Generally, a person who has just come out of a Chapter 7 or Chapter 13 bankruptcy should try to limit himself or herself to a single secured credit card—never a “store card” for Target, Home Depot, etc.—that will only be used for emergencies or necessities. The rule of thumb is do not use the credit card unless you have the money to pay for what you are purchasing with it. You should always pay more than your minimum balance and you should avoid transferring balances unless you are intending to close one account.
In order to improve your credit rating, you will have to demonstrate that you have learned from your mistakes be managing any new credit responsibly. If you had to file bankruptcy because you took on more than you could handle, it is important not to immediately go out and repeat that same mistake.
Law Firm of Kevin D. Judd – Maryland bankruptcy lawyer