Credit Cards After Bankruptcy—Be Sure Your Credit Cards Aren’t Hurting Your Credit Score
After bankruptcy, you will certainly be bombarded with offers for credit cards after bankruptcy. These credit card offers may even have “guaranteed approval,” making them enticing for people trying to build credit after bankruptcy.
But beware! The banks are failing to disclose a critical fact: Some credit cards after bankruptcy will hurt your credit score!
If you have been through a bankruptcy, you are probably interested in building credit after bankruptcy. And the first rule of repairing credit after bankruptcy is to open new lines of credit.
However, many of these credit card offers will be for subprime credit cards. These credit cards have so many user fees attached to them that the cardholder’s balance immediately becomes too high to start rebuilding credit after bankruptcy.
Let’s take a look at a typical subprime credit card. In this example, imagine that the credit card has a balance of $600 and an interest rate of 29.99 percent, typical for credit cards after bankruptcy.
Now let’s take a look at the fees associated with this credit card. On a $600 limit, the fee to open the account could be as high as $150!
But the credit-scoring bureaus award the highest credit scores to people whose balances are less than 30 percent of the limit. This balance-to-limit ratio is called a “utilization rate.” On a card with a $600 limit, the balance should never be more than $180 to maintain the 30 percent utilization rate.
If the fee to open the account is $150, a person’s balance on the credit is already 25 percent the limit. And this doesn’t consider other fees like interest rates, annual fees, and the like.
And of course, the minute the cardholder makes a single purchase, the balance on a subprime credit card is probably pushed over that 30 percent utilization rate.
If you are looking for credit cards after bankruptcy, your best bet is to apply for secured credit cards. Though secured credit cards require a deposit, the best ones do not charge fees that cause the balance to exceed 30 percent.
Fortunately, we have researched all the secured cards out there. These are the best credit cards after bankruptcy. Remember the basics of building a credit score using credit cards:
- Do not open retail account.
- Keep your credit card limits no more than 30 percent of the balance.
- Pay your bills on time.
- Keep three to five active credit cards.
If you have any questions about credit cards after bankruptcy, be sure to attend our teleseminar, where we disclose all sorts of other dirty tricks the banks use that suppress a person’s credit score!
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