All one has to do is look at statistics and you will read where over the past few years the filings of bankruptcies has escalated in the United States. With the change of bankruptcy laws last October 2005, many consumers that were overburdened with debt, who may have otherwise not filed, did so in fear of how the new changes would affect them had they waited.
Okay so now it’s done. The bankruptcy has been filed, you have been to court and your case has either been dismissed or you are making agreed upon payments depending on which chapter of bankruptcy you filed which would have been either Chapter 7, Chapter 11, or Chapter 13 depending on your assets and goals. Suddenly credit card offers are filling up your mailbox. Now what? There are two words you need to be made aware of, buyer beware.
These offers are going to look attractive and inevitably credit will need to be reestablished. The only way to do that is by starting a new payment history. If you haven’t already, you will start to receive credit card offers on a regular basis. The invitation will look pretty and the offer will be enticing but before you jump in with both feet, read the fine print. Read every single page. These are normally high interest credit cards that are advertised as pre-qualified unsecured with very high fees that can get you right back into the financial mess that you were in prior to filing bankruptcy. This situation is the proverbial Catch 22. The fact is you almost have to have at least one credit card to rent cars and reserve hotels. Most will accept debit cards, but a debit card will not help you to reestablish a credit history. Simply be aware of a few things before you sign on the dotted line.
Let’s talk fees. Most of the card will tell you in advance what your credit limit is, but from this credit limit your annual fee or in some cases account opening fee will be taken from that limit. Most limits are usually $300 minus an annual fee of $150. With one card I reviewed, once you receive the card, you must make a $20 payment before the card can be activated for use which would leave you with a credit limit of $170. This is just for starters. There is an account monthly maintenance fee of $6. There is a $35 late fee, a $35 over limit fee, and a $35 returned check fee. Should you choose to take a cash advance against the card you are looking at another fee (which varies), which is stated in the summary as a finance charge. If the payment is delinquent you will then be looking at another fee. Take in mind the percentage rates on most of these “second chance” cards range anywhere from 17.75% to 31.75%. Should you fall behind in payments you are looking at giving money away and putting yourself right back where you were, or even possibly in a worse place prior to bankruptcy. The fact is now that your credit is blemished you are going to be looking at higher interest rates on anything you are approved for. Most of these lenders are called sub-prime lenders and they deal primarily with people with blemished or bad credit. Please understand what you are paying for and why.
If you must get one of these cards and inevitably you will to rebuild credit history, get only one. That is all you need to begin to reestablish a payment history. Use it for small purchases and pay the balance in full. Do the same thing the next month. Avoid cash advances on the card and avoid using the checks they will send you that correspond with the card, as it is taken out of the same established credit limit you were authorized with the card. Using the card for cash advances and checks give the card company the opportunity to access others fees on top of the already high interest rate. To avoid any hidden fees it is imperative that the time is taken by the consumer to read the Bank Credit Card Agreement and Summary of Terms of the credit card signed up for. On the upside, after six months of good payment history, you will receive an increase on your credit limit. Continue the process monthly of making a small purchase and paying the card in full until you have established your payment history returning it to stellar.
Not everyone that files bankruptcy does so out of having gotten in debt due to frivolous spending. Some people lost their jobs; some were unable to find jobs following college, and others may have experienced serious illnesses or other unfortunate tragedies and so deserve a second chance. It remains that everyone that filed still had a thread of common element, the failure to plan for emergencies or the unexpected, or even possibly had an unrealistic outlook regarding their relationship to money. This can be rectified. Everyone can have a positive relationship with his or her finances. In fact a bankruptcy can be a once in a lifetime positive turning point in a persons’ attitude toward money. If the terms of your bankruptcy did not require you to attend a consumer credit course and financial management course, I strongly advise you do so for future planning. Where a lot of consumers viewed the new bankruptcy requirements as penalizing in terms of the requirement to attend classes, in reality it is a very responsible move. The material presented in the classes sets the groundwork for developing new attitudes to wards saving, investing and building wealth. Information regarding these classes can be obtained either through your local bankruptcy court or through your local Consumer Credit Counseling Service. They are there to assist and provide you with the necessary tools to reestablish credit and rebuild your credit rating.