Unsecured credit cards is one of the best ways of improving credit. By getting a credit card and paying the bills on time, you improve your payment history and subsequently your credit rating improves. So credit cards are a good way of improving credit rating after bankruptcy.
There are two main types of credit cards – secured and unsecured. The difference between them is that the secured credit cards are tied to your bank account, which sort of acts as a collateral to the credit card account. That is to say that if you’re not able to pay the credit card bills on time, then your credit card company will be adjusted it with the bank account. The second type is the unsecured credit card. This is one which comes with no collateral. And one would think that unsecured credit cards are tailor-made for people who have been bankrupt, as they may not have any assets to offer as collateral anyway. Hence these offer them the financial olive-branch which they so desperately need at the end of the bankruptcy proceedings.
Before you apply for one, here are some things that you need be careful of:
- The original bank (creditors) that were involved in your chapter 7 or chapter 13 bankruptcy. It’s only logical that you don’t go back to them to start stocking up credit.
- Another point is that once you do manage to get a credit card, use as little from the credit limit as possible. Stretching your spending limit by too much will definitely impact the credit limit.
Interest Charges
The first thing you need to keep in mind is that the interest charges will be a lot higher. The interest charges are high because the credit card companies look at you as a risky investment and since you’re offering no collateral anyway, it makes you a riskier proposition from the point of view of the credit card companies. Hence, you will be charged a phenomenal rate of interest. But you need to be patient and smart enough to hunt for the best deals.
Annual Charges
Looking at this again from the point of view of the credit card company, you – with your bad credit score and not offering collateral – are a pretty risky investment proposition again. So, they will most probably ask for more annual charges and you will have to pay a higher payment while getting a new credit card after bankruptcy.
Low Spending Limit
Your new card will doubtless come with a pretty low spending limit, which is a good thing as you ought to rein in your expenses as much as you can. But with time and regular payments, you will see your credit limit elevated over time.
So this was a rough guideline on the things to keep in mind while going in for an unsecured credit card. As you can see, this is one of the easy ways of rebuilding credit. But let me warn you that getting it can be tough because not too many companies will be willing to give a credit card to someone who has gone bankrupt. So you might really have to search hard to find a really good deal.
