When you are fresh from bankruptcy, you may decide you never want to touch a piece of plastic again. But here are some questions to consider:
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Do I want to buy a house?Do I need to buy a car?Do I have kids that need help for college?
If you answered yes to any of these questions, can you pay cash? If not, you will need to secure a mortgage, auto financing, or a student loan sometime in the future, and you will need to rebuild your credit history for that purpose.
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What about buying a cell phone? Renting an apartment? Most apartment managers or landlords will ask to run your credit as a condition of renting. Even cell phone companies will run your credit when you sign up for service. So more than likely you will need a decent credit score for any number of things.
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Credit cards, carefully selected and used, can be a good way to rebuild your credit. Credit card offers may already be flooding your mailbox. Most of them will not be worth pursuing. But if you have decided that you want re-establish your credit history, you need to know the right things to look for and the right things to ask the credit card company when deciding whether an offer is a good one.
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The two basic types of credit cards are secured and unsecured. Unsecured cards require an application and are typically approved or declined based on a person’s credit history. An unsecured card will be harder to be approved for after a bankruptcy. A secured card is one that requires a deposit upfront, and your credit line/limit will usually be equal to your deposit if you are approved.
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There are several things to consider when looking at card offers. These criteria can help you quickly narrow down your search:
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- What is the annual fee? Annual fees can range from $35 to $120 and more. You don’t need to settle for and pay a high annual fee.
- Are there other fees? These can be called setup fees, processing fees, program fees or one-time fees, and are not indicative of a good card.
- What is the interest rate? Rates can vary greatly, and you want the best possible rate. Make sure the rate you are quoted is not just a promotional rate. READ THE FINE PRINT.
- Is it reported to the credit bureau? You want your chosen credit card to work for you. You want a good payment history reported to all three credit bureaus. One note — if the card is secured, you do not want this fact reported, as it will do little or nothing to help your credit. It is possible to find secured cards that are not reported as secured. Some banks do, some don’t, you need to ask.
If you have sifted through offers mailed to you and have not found a good card to apply for, a good place to search for a secured credit card is at your local credit union. If you don’t belong to one, you may be able to join one as many have liberal membership policies. You can find a local credit union by entering your zip code.
Here is an example of a how good a deal can be found with a credit union. Check out this one: GTE Federal Credit Union.
This credit union was originally open for GTE employees, but now offers membership through your employer, or a family member, or a low-cost program called CU Savers. It offers a secured card with:
- No annual fee
- Low fixed rate of 14.9%
- Minimum $500 pledge amount
- No finance charge if you pay your balance in full within the 25-day grace period (excluding cash advances and convenience checks)
Another example of a good card is an Orchard Bank secured credit card. The fee structure is a little different, but the annual fee is waived the first year.- Reports to all three major credit bureaus
- Earns interest on your deposit
- Your choice of due dates
- $35 annual fee waived the first year
- 7.9% to 15.99% interest rate
- $200 minimum deposit
Don’t apply for several cards at once, this could end up hurting your credit. You only need to carry one or two credit cards. Once you are approved for a card, charge ONLY what you can afford to pay off each month. Regular, on-time payments are critical to rebuilding and establishing good credit.
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