A Money Talks News reader recently wrote me with this question, which is quite common…
I finished paying off my Chapter 13 bankruptcy four years ago. I now have a 740 credit score and have not made any late payments to my mortgage. I have had a car loan since then and a small personal loan that never had late payments. What would be the best unsecured credit card I could get? I just want a basic credit card, mostly for emergencies like car repairs.
Chapter 13 bankruptcy is a form of debt consolidation that, unlike Chapter 7, does not relieve you of your obligation to pay off debts. Debtors are required to propose a plan to pay creditors over a 3-5 year period. Nevertheless, the stain remains on your credit history for 10 years. In addition, debtors are required to seek permission from their bankruptcy trustee before they apply for new credit.
Since Sally has completely discharged her bankruptcy, she no longer needs to get permission before applying for a new card. So the question is: which card to get?
Now that she’s just getting on her feet again financially, I’d recommend one of the “simple” cards on the market. These cards offer low interest rates and fewer penalties and fees than most cards. I’d suggest Sally read about my choices for 5 Simple Credit Cards and pick one that fits her. By keeping things simple – and avoiding reward cards – Sally can slowly and carefully start using credit cards again.
And while it’s a good idea for her to get a credit card to start rebuilding her credit, she should take great care to ensure that she doesn’t slip back into debt. To prevent that from happening again, I strongly recommend she start putting some money away each month toward the maintenance of her car or other emergencies. Why? Because the ideal way to use credit cards is as a method of payment, not a means to finance emergencies.
Climbing back out of debt using Chapter 13 is a time-consuming and emotionally draining process. But by looking for the simplest cards on the market, Sally can rebuild her credit while having a card to fall back on if she needs it.