Many of our clients tell us they are never going to open another credit card again once they file for bankruptcy. While this may help prevent them from incurring debt, it is not the best way to rebuild your credit score after you have filed for bankruptcy. In order to rebuild your credit after bankruptcy you’ll need to open credit cards to reestablish and build your credit score. Every day we are inundated with credit card offers. Whether it is from commercials on TV, email offers, or offers at the store. However, not all credit cards or credit card offers are the same. Today, we will look at the different types of credit cards and the impact they have on improving your credit score after bankruptcy.
Standard Credit Card
One type of credit card is a standard credit card or major credit card. These cards will have a Visa, American Express, Discover or Mastercard logo on them. These credit cards can also be used where ever the card is accepted. Even amongst the major credit cards there are a number of differences. Some credit cards are balance transfer credit cards, some have rewards programs with cash back or airline miles and some have retail rewards cards.
Merchant Credit Card
A second type of credit card is a merchant or store credit card. These are the types of card that are usually offered at major retailers such as Nordstrom, Macy’s, Target, or Costco. Normally, they will not have a Visa, American Express, Discover or Mastercard logo. Another feature is that they can normally only be used at the particular store that issued the credit card.
Secured Credit Card
Another type of credit card is a secured credit card. Secured credit cards require a cash deposit which becomes the credit line for the account. So, if you put $500 in the account, you can charge up to $500 on the secured credit card. Be sure to shop around for the best available secured card. The interest rate, fees and required deposit are all things you should examine prior to opening a secured credit card.
Rebuilding Credit After Bankruptcy
As mentioned earlier, after bankruptcy you should look to start rebuilding your credit by opening credit card accounts. If you can, it is best to open three to five major credit cards after bankruptcy. If you can’t, open a standard or major credit card right away then look to open a secured credit card. The amount of cards should not include a store or merchant credit card as these cards are not always reported to the credit bureaus. And, if they are not reported to the credit bureaus, they will not be reestablishing or increasing your credit score.
By having between three and give major credit cards it gives the bureaus a sufficient amount of data to evaluate your credit worthiness. Anything lower than three will not give them enough information and anything over five may prove difficult to manage.
Lastly, and most importantly, remember to make your credit card payments on time every month. That is the biggest factor to reestablishing your credit and improving your credit score.
For more information on rebuilding credit after bankruptcy, call a licensed bankruptcy professional at our office at (248) 237-7979.