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A Money Talks News reader asks…
“Jason, how can I start building my credit? My Chapter 7 Bankruptcy became official as of January 2012 and I would like to start rebuilding my credit. Where can I apply for a credit card to start improving my credit score?”
Thanks for the question, Viviana. Here’s your answer…
As you’ve found, Chapter 7 bankruptcies are devastating to your credit. But it’s not the end of the world. Right now, you can get a secured credit card that will immediately begin helping you improve your credit score.
Secured card offers require you to make a deposit first, sometimes as little as $200. Usually, this amount then becomes your credit limit, and the card works just like any other. You have to pay your bills on time, and you’ll get hit with interest charges if you carry a balance. The good news is that many of these cards come with car rental insurance and other benefits that aren’t available when you use cash, check, or even a debit card.
But there’s a catch.
Many secured (and unsecured) credit cards marketed to people rebuilding their credit are full of unnecessary fees and exorbitant interest rates. In fact, one of these cards was nearly the subject of government action.
Fortunately, there are several good secured card options available, even within a year of bankruptcy. The New York Times looked into which secured cards guarantee acceptance and found that HSBC and Capital One both promise to make theirs available to those who have discharged their debts, established their identity, and provided a deposit.
Since Capital One is the rare secured card that extends a line of credit in excess of your deposit, you might not get approved automatically. Therefore, try the HSBC (Orchard Bank) Secured MasterCard. It has no annual fee the first year ($35 after that) and a low standard APR of 7.99 percent. There’s a $200 minimum deposit, but it actually earns interest.
I would use this card for a year and be very careful to make all your payments on time. Doing so will allow you to apply for secured cards while your credit improves. You’ll then be eligible for unsecured cards after a few years of consistent payments.
By going through Chapter 7, you’ve committed yourself to starting over financially. Fortunately, there are companies willing to give you the opportunity to rebuild your credit right now. For more ways to build credit than just with credit cards, check out 8 Tips to Get Credit When You Don’t Have Any.