Nearly two out of three bankruptcies in the United States happen because of medical bills, unexpected job losses or other reasons outside consumers' control. If you managed credit cards effectively before you were forced to declare bankruptcy, you don't have to give up their security or convenience for long. A two-pronged recovery plan that includes both secured and unsecured cards can help you restore your personal credit.
Secured credit cards: right away
Opening a secured credit card offers one of the easiest and most hassle-free ways to rebuild your credit. If you can afford to park as little as $200 in a savings account for the next two years, you can establish a trade line that will help you restore your financial health much sooner than if you go it alone.
If you already maintain a checking account at a retail bank like Wells Fargo or Bank of America, your branch manager can help you complete the appropriate applications. If you prefer to bank completely online, or if you prefer to separate your credit card from your other banking relationships, Capital One and First Progress both offer affordable secured credit card options.
Unsecured credit cards: within a few months, but proceed with caution
If you filed a Chapter 13 bankruptcy, you may find it relatively difficult to qualify for an unsecured credit card. Depending on your trustee's plan, you may be making partial payments on existing credit card accounts, making it tough for new banks to accept your application.
However, if you filed a Chapter 7 bankruptcy, you'll notice a near flood of pre-qualified credit card applications in your mailbox a few months after your discharge posts to your credit reports. Banks know that you're unable to file for bankruptcy again for another 7 years, reducing the risk of default. While you might not hear from a bank that you included in your bankruptcy filing, you could hear from their biggest competitors.
Watch out for subprime lenders and scam offers during the first few years after your discharge. They'll send you ads for credit cards for poor credit that actually only entitle you to heavily marked-up retail goods. Some subprime Visa and MasterCard issuers charge exorbitant application fees and monthly service charges in addition to high APRs. Their marketing pitches suggest that you won't find a better deal after bankruptcy. In reality, you could save up what you'd otherwise pay in fees, park that cash in a secured credit card's linked deposit account, and get that money back after you've graduated to a stronger, unsecured card.