What You Should Know about Credit Cards and Bankruptcy
Many myths circulate about bankruptcy. Some people fear that after they file, they must wait 10 years before applying for a credit card. Or they may believe that no financial institution would ever agree to issue them a credit card until 10 years after the date they filed bankruptcy.
Fair Credit Reporting Act
One way to dismiss myths is to understand what the law actually says. Under the Fair Credit Reporting Act of 1970, (http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cts=1330619506233&ved=0CEQQFjAA&url=http%3A%2F%2Fwww.ftc.gov%2Fos%2Fstatutes%2F031224fcra.pdf&ei=eaRPT5GKDMehtwek9eiqDQ&usg=AFQjCNFuAtXmfAcFofNRWi5MCc_SOoE32A), no credit reporting agency may keep a record of bankruptcy on a credit report past 10 years from the date of the order of relief or adjudication.
Notice that this law does not mention prohibiting debtors who filed bankruptcy from obtaining credit, nor does it stop financial institutions from granting them credit.
Ways to reestablish credit
After filing bankruptcy because of credit card debt, some people never wish to see a credit card again. Living without credit cards puts them in control of their finances and prevents them from spending beyond their means.
Other people who believe they learned from their credit card mistakes feel confident about jumping into the credit world again.
The following are some ways to reestablish credit after bankruptcy:
* Obtain a secured credit card. Secured credit cards involve less risk for the lender. A secured credit card requires the cardholder to set up a savings account that secures the card's limit. In the event that cardholders cannot pay the credit card balance, the lender has funds to draw on through the savings account. If you get a secured credit card, make sure the lender reports your activity to a credit reporting agency. Otherwise, you do not rebuild your credit by using it.
- Obtain a new card at higher rates. Once you prove you can pay off a card at higher rates, lenders may reconsider issuing you credit cards at lower rates again.
- Obtain a small loan. You can obtain a small, short-term loan, and put the money in a savings account or CD. Set up a payment plan reminder so you make loan payments on time every month. Once you repay the loan in full, it improves your credit report.
- Finance the purchase of a vehicle. If you need a vehicle, financing a car, even if you have to pay higher interest rates initially, could be an excellent way to reestablish a good credit rating. Make sure you only finance an affordable amount, but making regular payments on a vehicle gets reported to the bureaus and can help build a good credit score.
Before filing, discuss your fears about bankruptcy with an experienced bankruptcy lawyer and find out whether they are well-founded or simply myths.