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25 Aug 2016

Applying for a Credit Card After Bankruptcy

Filing for bankruptcy typically means taking a big hit on your credit score, but it doesn’t necessarily mean you’re shut off from new credit entirely.

A bankruptcy filing on your credit reports will make credit approval harder. However, different lenders have different policies, and creditors look at multiple factors when determining your credit eligibility. Factors such as your income and the time since the bankruptcy was resolved also come into play.

Policies vary by issuer

Some credit issuers have explicit policies on how a bankruptcy might affect credit approval. The sign-up page for the Capital One® Secured MasterCard®, for example, notes that applicants are not eligible if they “have a non-discharged bankruptcy (one that is still unresolved).”

Issuers often aren’t clear about the criteria on which they approve or deny applications. Most people find out whether they’ve been approved or denied only after applying — and receiving a hard credit pull that can ding their score further. Each lender or card issuer has its own guidelines on whom it accepts for specific cards. Those guidelines aren’t as simple as having a certain credit score or having a bankruptcy that was resolved more than a certain number of years ago.

However, if you’re looking to rebuild your post-bankruptcy credit with a credit card, a secured card is probably the best way to start.

What is a secured card?

Secured cards are designed specifically for people trying to improve their credit. They’re different from normal credit cards in that they require you to put down a security deposit, usually a few hundred dollars. Your deposit typically equals your credit line: Make a $400 deposit, for example, and you have a $400 line of credit. The deposit protects the issuer if you don’t make your payments. That makes secured cards a relatively safe bet for lenders extending credit lines to people with lower credit scores.

Nerd tip:

A secured card is different from a prepaid debit card. With a secured card, your deposit serves as a backup in case you don’t pay your bill. With prepaid debit, the money you “load” onto the card is used to pay for your purchases. Prepaid debit cards do not help you build credit.

“Secured credit cards are obviously a good choice,” says Carlos Colón, financial education program manager for Mpowered, a nonprofit financial coaching organization in Colorado. “Depending on the bank or credit union — and I like to advocate for credit unions because they are nonprofits — they may have some requirements in terms of how long the bankruptcy has passed.”

» MORE: NerdWallet’s best secured credit cards

Credit card issuers can and do deny applicants with recent bankruptcies or other dings on their credit reports, even for secured cards. If you suspect a bankruptcy filing may mean you’ll be denied for a secured card through a larger issuer, consider applying for one at your local credit union.

Read more about it here: http://bit.ly/2btNJBu

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