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Rebuilding Your Credit After Bankruptcy

Ok, so this is going to sound counter-intuitive, but often the best way to rebuild your credit is through, that’s right credit cards! The very menace that most likely helped lead to your bankruptcy in the first place. You see, most credit card companies report monthly activity to the credit reporting agencies – the businesses that determine your credit score. Therefore, to help build your credit faster you will need to offset your prior credit troubles and tribulations with some positive news. Now in doing so be careful of potential pitfalls.

The first one is to be very selective in the cards that you apply for and use. You will very likely begin receiving credit card offers soon after your bankruptcy discharge. The credit card companies know that you can’t file again for several years and they view you as a somewhat safe bet.

Not long ago, CNN published an article detailing the 7 best credit cards for rebuilding your credit:

The 7 best in their opinion based on low upfront/annual fees and APR are Orchard Bank, Capital One Secured MasterCard, Navy Federal ‘n Rewards Secured Card, Citi Secured MasterCard, Mango Prepaid MasterCard, Capital One Cash Rewards for Newcomers & Open Sky Secured Visa Card.

Another thing to be careful about is how you use the cards. I would recommend charging a very conservative amount each month – say on things that are necessary like gas and would normally otherwise pay cash for. Instead, put the cash that you would normally use away in the cookie jar and make sure to pay off your balance in full at the end of each month.

The 5 Best Secured Credit Cards

Reprinted from
by Jason Steele on 17 February 2012

Secured credit cards have a bad reputation, and most of these products deserve it. Too often, the companies that offer secured cards do so to prey on those with poor or little credit history by charging exorbitant interest rates and outrageous fees. Yet, the more I researched these products, the more convinced I became that the concept of a secure credit card is a sound one. Using the right product from a reputable institution, holders of secured cards can enjoy many of the benefits of standard credit cards that they might not qualify for. (See also: The Best 0% Balance Transfer Credit Cards)
How a Secured Card Works

Many loans are secured by collateral, such as those taken out for the purchase of a car or a home. In contrast, standard credit cards offer borrowers loans that are not secured by any property or deposits that can be repossessed in case of default. Therefore, applicants for unsecured loans must first be able to show banks a significant credit history. On the other hand, almost any applicant will qualify for a secured credit card. With these products, the cardholder must first pay a security deposit that protects the bank against the risk of default. In all other ways, a secured card operates just like a standard credit card. Cardholders receive monthly bills that they must pay on time or incur interest and penalties. At the same time, banks will report payment information to the credit bureaus, allowing cardholders to build their credit history.
What to Look for in a Secured Card

Your first priority in shopping for a secured card will be to stick with a reputable bank and avoid the numerous products with high-interest rates and unreasonable fees. Shoppers should look for a card with a low annual fee and perhaps one that might earn interest on their deposit. Finally, applicants should be aware that not all banks guarantee acceptance, so those with outstanding liens or a recent bankruptcy will not qualify for some of these cards.

  1. Capital One® Secured MasterCard®

With this card, a minimum security deposit of $50 will earn you a $200 credit limit. Since Capital One is extending you a credit line in excess of your deposit, it will consider the applicant’s ability to pay before acceptance. This card’s standard interest rate is equal to the Prime Rate plus 19.65%, and there is a $29 annual fee. Like all Capital One cards, there are no foreign transaction fees. This is a great feature not just for vacationers, but also for immigrants who have no credit history and may travel outside of the country to visit family.

  1. Citi Secured MasterCard (Expired)

This secured card comes with many of the benefits of a standard credit card including car rental insurances and retail purchase protection. In addition, Citi places cardholder’s deposits in an interest-earning account. The standard interest rate is equal to the Prime Rate plus 14.99%, and there is a $29 annual fee for this card. Unfortunately, Citibank says that it does not automatically accept all applications for this card.

  1. Wells Fargo Secured Visa Card

Wells Fargo offers its secured card to applicants with any credit history, so long as they have not declared bankruptcy in the last 12 months and have no unsettled liens. Once accepted, cardholders must make a deposit of between $300 and $10,000, which becomes their credit limit. This card comes with standard Visa benefits including auto rental insurance. Cardholders who carry a balance will incur interest at a rate equal to the Prime Rate plus 15.74%. There is a $25 annual fee for this card.

  1. U.S. Bank Secured Visa Card

This card offers customers the ability to earn interest on their security deposits. Although the rates these days are not great, it is still nice to feel like the interest earned is going to you instead of the bank. On the other hand, if you carry a balance, you will incur interest at the rate of prime plus 17.74%. There is a $35 annual fee for this card.

  1. BankAmericard Secured Visa

Bank of America offers its fully secured Visa card to customers who want to rebuild their credit. This card allows you to determine your credit line by making a deposit of between $300 and $4,900. This kind of flexibility is ideal for those who need a card for travel or other large expenditures. It has an annual fee of $39 and an interest rate equal to the Prime Rate plus 16.99%. And after 12 months of card membership, your account can be reviewed to see if you are eligible to have your card converted to a standard account and your security deposit returned.

When You Should Get a Secured Card

Those who have poor credit or no credit history may be tempted to just wash their hands of the entire credit card business. Unfortunately, that would be a mistake. Obtaining a secured card and making on-time payments is a critical way to rebuild one’s credit. Whether it is right or wrong, companies today use credit scores for background checks when hiring and for setting rates for services such as car insurance. Furthermore, travelers will find it difficult or impossible to reserve a hotel room or rent a car without holding a credit card, even if it is a secured card.

By choosing the right secured card, you can build your credit history while enjoying many of the benefits of standard credit cards.

If you have legal questions, call Marty Martin Bankruptcy Law at (405) 255-2380.