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Credit cards after bankruptcy: What you should know and consider

Have you thought about what your financial life will be like after bankruptcy? This may seem like we’re getting ahead of ourselves, but it’s actually helpful to have some idea about what you can expect as you begin to rebuild your credit and savings.

Many people try to avoid credit cards post-bankruptcy for two reasons. First, they want to steer clear of anything that could tempt them to spend beyond their means. Second, they may believe that no banks or credit card companies will give them a new credit account. Believe it or not, many people can get a credit card after filing for personal bankruptcy. Should you get one? If so, what kind of card?

The decision to get a credit card at all is one that you should discuss with your bankruptcy attorney. If, for instance, your bankruptcy was related to significant medical debt, frivolous spending may not be a risk for you. If it is, you might be better off learning how to live on an all-cash diet for awhile.

Having made the decision to get a credit card after bankruptcy, your options will likely be limited by your credit score. It may not be possible to get an unsecured credit card (what most cards are), but you might be eligible for a secured credit card. The credit you receive is secured by cash that you put down beforehand. The lender holds onto this money for the entire time that you have an account.

If you can make payments on time, your deposited money stays safe and your credit score begins to rebound. Just one year of good payment history can result in a significant rise in your credit score.

Because each person’s financial situation is different, you should always discuss your bankruptcy options (and post-bankruptcy strategy) with an attorney who knows your case.

Source: Fox Business, "Credit Card Life After Bankruptcy," Erica Sandberg, Aug. 21, 2014

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