Best credit cards after bankruptcy
Though the total number of individuals filing for bankruptcy each year is declining (the latest available report shows that the June 2016 annual bankruptcy filings totaled 819,159, compared with 879,736 cases in the previous year), there are still a staggering number of people who must deal with the repercussions of bankruptcy each year. And that means there are still a lot of people out there looking for the best credit cards after bankruptcy.
The thing is, sometimes, often even, the circumstances leading to a bankruptcy aren't fully in the control of the flier. A Texas A&M University research team found that more than 4 out of 5 bankruptcies resulted from "adverse events" outside the control of filers, and according to studies published in The American Journal of Medicine, more than half our country's bankruptcies involved significant medical debt of more than $5,000.
The good news is that many lenders understand that a bankruptcy rarely reflects your true relationship with money. That means 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. In fact, using a credit card after declaring bankruptcy is actually one of the best steps you can take to start improving your credit score, since your credit score is based upon several factors including your payment history, credit utilization (the ratio of your available credit to the amount you're using) as well as how long your accounts have been open. Therefore, it can make sense to apply for a credit card soon after bankruptcy to begin re-establishing your creditworthiness. You have both secured and non-secured options (click here to read more about these below). Just be sure you wait until after your discharge is complete before submitting any applications.
It could take some research to find an issuer who will approve you following a bankruptcy, but we've located a few top options in a number of categories.
Here are CardRatings' picks for best credit cards after bankruptcy:
Why We Like It: If it weren't for the security deposit (which could be returned in as little as eight months), it'd be easy to mistake the Discover it® Secured for an unsecured credit card because of its rewards. Not only can you earn 2 percent cash back on select purchases with this card, but you'll also have all of your cash back rewards matched at the end of your first year as a cardholder, which is a great perk for a secured credit card.
The Annual Fee: $0
Security Deposit: You choose the deposit amount with a minimum security deposit of $200 required. You can deposit more to secure a higher line of credit if you want (up to the amount Discover will approve). Your security deposit is refundable if you pay your balance in full and close your credit card account. Discover will also automatically review your credit card account monthly starting at eight months to see if your security deposit can be returned and your account can be transitioned to an unsecured account.
The Rewards: Cardholders earn 2 percent cash back at restaurants and gas stations on up to $1,000 in combined purchases each quarter, and 1 percent cash back on all other credit card purchases. Plus, Discover will automatically match all the cash back you've earned at the end of your first year.
Credit Management Tools: Discover will monitor and alert you if they find your Social Security number on a risky website, and it also provides you with your FICO Credit Score on your monthly statements, as well as online, for free – that's a number you'll no doubt be keeping an eye on as you work toward rebuilding your financial profile after a bankruptcy.
Why We Like It: If you're worried about attaining a higher level of credit but don't have a huge deposit to put down, the Capital One® Secured Mastercard® might be a good option for you. With this card, a deposit as low as $49 (and up to $200, see below) can establish your line of credit. Plus, cardholders will also have access to many of the great rewards unsecured Capital One credit cards offer, like extended warranty and price protection, as well as auto rental and travel accident insurance.
The Annual Fee: $0
Security Deposit: A $49, $99 or $200 refundable deposit. If your application is approved and you provide the minimum required security deposit prior to the expiration date, your account will be opened and you will receive the minimum initial credit line of $200. To increase your initial credit line, simply deposit more than your minimum required security deposit before your account opens. You can then raise your initial credit line by the amount of your additional deposit, up to $1,000. If you make your first five monthly payments on time, you'll get access to a higher credit line with no additional deposit needed. You may also earn credit line increases based on your payment history and creditworthiness.
The Rewards: None; however, Capital One® Secured Mastercard® members will have access to a number of shopping and travel benefits, such as extended warranty and price protection on purchases made with the card, auto rental and travel accident insurance, and 24-hour travel and roadside assistance.
Credit Management Tools: CreditWise from Capital One gives you unlimited access to your credit score, as well as free financial tools and information from the issuer's Financial Education site.
USAA® Secured Visa Platinum® Card
(This card is not currently available on CardRatings)
Why We Like It: Unlike the other secured credit cards featured here, your USAA® Secured Visa Platinum® Card security deposit will actually earn you money since it's made in the form of a two-year certificate of deposit (CD).
The Annual Fee: $35
Security Deposit: When you apply, you'll be able to determine your own credit limit by opening a two-year certificate of deposit (CD) in the amount of your choosing from $250 to $5,000. The balance of your CD is your credit limit.
The Rewards: Unlike with most other cards, with the USAA® Secured Visa Platinum® Card, your security deposit will earn variable interest. Additionally, this card offers users no foreign transaction fees, collision damage waiver coverage, identity theft resolution services, and extended warranty and price protection on purchases made with the card.
Credit Management Tools: Text message alerts and easy online and mobile account management tools.
Why We Like It: With the OpenSky® Secured Visa® Credit Card, no credit check is required to qualify, meaning the amount of your security deposit doesn't depend on your creditworthiness, but instead, you have total control over the amount of your deposit from $200 to $3,000 (with approval). That also means your credit won't take a hit when you apply.
The Annual Fee: $35
Security Deposit: A refundable deposit as low as $200 and up to $3,000 will determine your credit limit. Since no credit check is required to apply for this card, the amount of your deposit is up to you (with approval).
The Rewards: OpenSky® Secured Visa® Credit Card members have access to a number of shopping and travel benefits, such as extended warranty and price protection on purchases made with the card, auto rental and travel accident insurance, and 24-hour travel and roadside assistance.
Credit Management Tools: Easy online access to OpenSky's tips for rebuilding your credit as well as to stories from real OpenSky customers on what they're doing to get where they want to be financially. Sign up for email alerts that remind you when your bill is due or when you're nearing your credit limit. Take advantage of automatic payments so you pay your bill on time, every time.
Wells Fargo Secured Visa® Card
Why We Like It: The rewards for this card are pretty decent for a secured credit card, especially if you're looking to use your card to pay your cell phone bill. In addition to auto rental collision damage and travel and emergency assistance services, the Wells Fargo Secured Visa® Card offers up to $600 in cell phone protection when you use your card to pay your cell phone bill, which is a great offer for, well, pretty much anyone who owns a cell phone – and these days, who doesn't?
The Annual Fee: $25
Security Deposit: Your security deposit is equal to your line of credit. New users can get started with a deposit as little as $300. You must have a Wells Fargo checking or savings account to qualify for this card, and you can choose to have your security deposit withdrawn directly from your account.
The Rewards: Auto rental collision damage waiver and travel and emergency assistance services and up to $600 in cell phone protection per incident with a two-incident-per-year maximum (subject to a $25 deductible).
Credit Management Tools: Zero liability protection to help protect you from liability for unauthorized transactions, overdraft protection, rapid alerts to track purchases and receive notifications of irregular or suspicious activity, and budget tools to help you sort your monthly expenses against your budget.
Why We Like It: If it's an unsecured credit card that you're after, the Credit One Bank® Unsecured Visa® for Rebuilding Credit card is a good card to consider as it's designed specifically for people looking to rebuild their credit. There's no security deposit with this one; however, there is potential for an annual fee (depending on your creditworthiness), but we think the 1 percent cash back that can be earned on qualifying purchases helps to outweigh this cost, especially since unsecured credit cards that offer good rewards can be hard to qualify for so quickly after bankruptcy.
The Annual Fee: $0 - $99
Security Deposit: Not required as this is an unsecured card.
The Rewards: Based on your creditworthiness you will qualify for one of four cash-back rewards programs, the details of which will be shared with you after you pre-qualify for the card and could include 1 percent cash back on eligible gas, groceries, dining purchases, mobile phone services, internet services, and/or cable and satellite TV services or even just a flat 1 percent cash back on all your purchases, among other possibilities.
Credit Management Tools: Free credit score tracking and customizable account notifications.
SECURED VS. UNSECURED CREDIT CARDS
Your options after bankruptcy will likely include mostly secured credit cards, which provide excellent opportunities to rebuild your credit just like traditional (ie. unsecured) cards do. With a secured card, you'll be required to supply a security deposit up front, usually ranging from $49 up to $200 depending on the issuer. The deposit will secure your line of credit and will generally be equal to your credit limit. Assuming you keep your account in good standing and pay all your bills, that deposit will be returned to you in full when you either close the account or are upgraded to a non-secured card.
Though the terms of a secured credit card might not be as appealing as those offered with unsecured cards, don't discount them completely. Issuers of secured credit cards will report your payments to credit bureaus and help boost your credit score the same as other cards. However, as with other credit cards, compare several options to be sure you are getting the lowest fees and interest possible. And although they may appear similar, don't confuse secured credit cards with prepaid cards. Except in rare instances, prepaid cards don't report to the credit bureaus and won't help your score.
If an unsecured credit card is really what you're after, it's still an option, 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 seven 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. Just be sure to watch out for subprime lenders and scam offers during the first few years after your discharge. They'll send ads for credit cards for poor credit that actually only entitle you to heavily marked-up retail goods, and 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, but 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.
While some credit cards are harder to qualify for than others (American Express, for example, is a particularly tough one to break into after bankruptcy), not all hope is lost when it comes to applying for new cards after bankruptcy. When it comes to rebuilding credit after bankruptcy, consider the cards above as building blocks to improving your financial future.