The key to credit card recovery is pretty much the same as what is required of someone who has no credit history. It’s a Catch-22 situation where you are expected to have a credit history to get further credit. In the case of bankruptcy, you have a history that is less than sterling. In the case of someone seeking credit for the first time, you have no history.
The only way to establish credit is to buy something on credit or borrow small amounts of money. Even with bad credit, some stores will allow you to buy some small ticket items on credit as long as you have an established job with sufficient income.
Layaway is making a comeback in these difficult times and successfully buying a few things on layaway can give you a small beginning in establishing a credit history. Stores love to have you use their credit cards. Again, you might be able to get a store credit card with a small purchase that you can quickly and easily pay off.
Your bankruptcy guarantees that reestablishing credit is going to take some time. It took some time to get into the position of having to declare bankruptcy. Slow and steady will eventually work out for you.
Secure Credit Cards
One of the easiest ways to begin establishing good credit again is to get a secured credit card. This is a card that you can use to purchase things with no risk to the issuing bank. It can be your own bank or any bank credit card.
Essentially, you deposit a certain amount of money with the credit card issuer. This is usually $300 or more. Then you use the card like any other credit card. Once you run up to your limit, you deposit more money.
It’s a bit of a scam because you’re just “borrowing” your own money but you are still establishing creditworthiness by using this kind of card. After some time, the card company may allow you to have a low limit card for which you do not have to prepay.
Your own bank may be willing to make a small loan for a specific purpose based on your history with them. Unless you have frequently overdrawn your account or shown other forms of irresponsible fiscal behavior, the bank is likely to loan you an amount of less than $1,000, especially if you keep a balance in checking or savings of more than the borrowed amount.
In fact, this can be part of the agreement, similar to a secured credit card. You borrow money based on your own savings or checking balance and then pay it back over a short period of time.
You can also borrow money with a cosigner. This can be a bit risky for the cosigner because they are responsible for the repayment of the loan if you default. If you know you can easily pay back a small loan, a cosigned loan will still contribute to your credit score.
In the end, creating credit for the first time or recovering your credit after bankruptcy will take some time. The days of easy credit are over. Companies are not sending unsolicited cards in the mail as they did in the late ‘50s and early ‘60s. College students are not being hounded to accept credit cards.
Still, with perseverance and determination, any bankruptcy can be overcome and good credit restored. It requires demonstrating, with your responsible use of even small amounts of credit, that you are ready to be a citizen who is a trustworthy borrower and spender.