In our last post, we began looking at the use of credit and what one can do to help improve one’s credit health following a bankruptcy filing. As we noted, giving up credit will not help improve one’s credit score since credit use frequency is among the factors used to calculate credit score. A better strategy is to make cautious but strategic use of credit to quickly improve one’s credit score.
Secured credit cards are the most likely possibility following bankruptcy. Secured credit cards require the borrower to make a refundable deposit that serves as collateral. The deposit serves as security for the lender in the event the borrower doesn’t pay his or her bills. The terms of these cards vary, of course, with respect to the required deposit, fees and other charges, so it is possible to shop around.
Getting a secured credit card isn’t automatic–one still needs to be approved, but it is a more likely possibility than what may have been available prior to the debtor’s bankruptcy filing. Those who are unable to obtain approval for a secured credit card from a large bank may find that they have better luck at a local credit union. The important thing is that the lender reports to the credit bureaus, so that use of the card actually has an impact on one’s credit score.
Rebuilding credit after bankruptcy is not impossible, and it doesn’t have to take that long to make some improvement. It certainly shouldn’t be a reason to forego bankruptcy, particularly for those whose credit has already been seriously compromised by unpaid bill and significant debts.