Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.
Today’s question is about credit cards — specifically, what to do when you can’t get one because of bad credit.
Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.
You also can learn how to send in a question of your own below.
For more information, check out “8 Easy Ways to Build Credit From Scratch” and “Ask Stacy — How Can I Rebuild My Credit After a Bankruptcy?” You can also go to the search at the top of this page, put in the words “credit score” or “credit cards” and find plenty of information on just about everything relating to these topics.
And if you need anything from tips on credit repair to finding the best financial advice, be sure and visit our Solutions Center.
Got a question of your own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hello, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by Money Talks News, serving up the best in personal finance news and advice since 1991.
Today’s question comes from Sylvia:
“Six years ago I had a bankruptcy, so no one will give me a credit card. Any suggestions?”
You bet! Let’s take it step by step.
Life after debt
While filing bankruptcy isn’t easy, it’s often a relief. It begins when you determine it’s time to file — a question I address in “Ask Stacy: When Should You File Bankruptcy?” — and ends after the dust settles and you’re on the road to rebuilding your credit.
Rebuilding credit after bankruptcy isn’t easy, but it is simple. I’ll answer Sylvia’s question as I lay out the steps.
Step 1: Recognize you’re on a long road
Chapter 7 and Chapter 11 bankruptcies remain on your credit history for up to 10 years, while a discharged Chapter 13 will fall off after a maximum of seven. That doesn’t mean you won’t get credit for seven or 10 years — you might be able to get it the same day your filing goes through. And as time passes and the negative effect on your credit fades, it will get easier.
But it’s important to know there’s no trick that will magically erase your bankruptcy or instantly give your credit score a significant boost. Rule of thumb: If anyone promises a quick fix, they’re lying.
Step 2: Get whatever credit you can
It’s no surprise that getting a credit card after bankruptcy isn’t a walk in the park. But that doesn’t mean getting new credit will be impossible, even immediately after it happens.
When you’re ready to get back in the saddle, your first step should be a secured credit card. As the name implies, secured cards require a security deposit matching your credit limit. So, if you get a card with a $500 credit limit, you’ll “secure” the card by putting $500 in a savings account as collateral. Since your deposit guarantees your credit line, it’s very low-risk for the issuer, which means you’ll have high odds of being approved.
After successfully using a secured card for a period, that issuer or another may offer traditional plastic.
Before you get a secured card, however, make sure the issuer will report your transactions to credit-reporting agencies like Equifax, Experian and TransUnion. Banks are not required to report your payment history, and some secured credit cards don’t — which makes them useless in rebuilding credit.
We offer some options for secured cards in the “Secured” section of our credit card page.
Another thing Sylvia might consider is opening an account with a credit union. In addition to offering lower rates on loans and higher rates on savings — see “12 Great Reasons to Drop Your Bank and Join a Credit Union” — credit unions sometimes (but not always) are more flexible with lending standards. So, it might be easier to get a credit card, car loan or signature loan there than at a big national bank. Don’t expect miracles, however, and do expect to begin your credit union relationship with a savings deposit.
One final idea for positive additions to a credit history: You can ask utilities and other companies to report your on-time behavior. Some will, some won’t.
Step 3: Pay your bills on time, all the time, for a long time
I know what you’re thinking — duh. But I mention this because it’s the single most important thing you’ll do to rebuild your credit, and it’s often left out in favor of things that don’t matter as much — like getting a secured credit card.
It doesn’t take much time to wreck your credit, but it takes a long time to repair it. So be patient, get what credit you can, then pay everything on time. As your bankruptcy fades into the past, your credit score will rise.
Hope that helps, Sylvia!
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The questions I’m likeliest to answer are those that come from our members. You can learn how to become one here. Also, questions should be of interest to other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and I’ve also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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