Be Careful of Your First Credit Card After Bankruptcy
For over 25 years, I represented debtors, filing over 4,000 consumer bankruptcy cases under Chapters 7 and 13. Now, I represent creditors seeking to recover what they are owed from Texas debtors. One common post-bankruptcy issue that often arises is the first credit card offer after bankruptcy. While it may seem like a step toward financial recovery, it comes with many pitfalls that can set you back.
When you complete your bankruptcy, you may start receiving numerous offers for new credit cards, car loans, and even furniture loans. However, it’s essential to approach these offers with caution. Below is the guidance I now offer creditors, but it is also valuable for debtors who are considering accepting these offers.
Why Creditors Target You After Bankruptcy
Credit card companies target individuals who have recently filed for bankruptcy because they are considered good credit risks. Why? Simple: You have no more debt! Additionally, since you cannot file Chapter 7 bankruptcy for another eight years, creditors know that you can’t discharge this new credit card debt anytime soon. Many people who have completed bankruptcy are eager (sometimes even desperate) to reestablish their credit, and creditors know this.
However, you need to understand that while credit card offers may seem attractive, they often come with hidden costs and strict terms.
Credit Cards After Bankruptcy Come with Costs
Many of the credit card offers you’ll receive post-bankruptcy will not be favorable. For example, the credit limit is usually low—typically between $300 and $500—and in return for this limited credit, the fees can be substantial. Common fees include:
- Setup fees as high as $75
- First-year annual fees of $45 or more
- Application fees
- Monthly service fees up to $5
- Paper statement fees of $4.95
These fees can easily surpass half of your credit limit before you even use the card. In other words, the $300 credit limit can quickly be reduced to just $150 in available credit after fees, and you will still be responsible for paying that back.
Stringent Terms to Watch Out For
If you choose to get a new credit card after bankruptcy, it’s crucial to understand the terms and conditions. The most important thing to remember is that you must pay your credit card bills on time. This is your opportunity to rebuild your credit, so don’t jeopardize it.
Many high-risk credit card companies impose high late fees for missing payments. Some companies intentionally delay posting payments made online, which can result in missed due dates if you don’t act quickly. Make sure to pay well ahead of time and double-check that your payment has been processed before the due date.
High Penalty Interest Rates After Bankruptcy
Even if you have received a credit card offer, remember that you are still a high-risk borrower. Credit card companies will charge high-interest rates—often upwards of 20%—and they have the legal right to apply even higher penalty interest rates if you miss a payment. If you have a 20% interest rate, it can increase to 34% or higher if you are late. This is a severe penalty, and it’s important to know that this can happen even if you are late just once.
Furthermore, some credit card companies may impose penalties if you miss payments with other creditors. If you’re late on one card, your new card issuer could penalize you as well.
Be an Informed Consumer
Getting a credit card after bankruptcy may be easy, but it’s essential to approach it cautiously. The credit card issuers target you precisely because you’ve filed for bankruptcy. They know that many individuals are eager to reestablish credit, which is why they market to you. Before jumping at the first offer you receive, READ the terms of the offer carefully and understand the fine print.
When you do receive your new credit card, READ the cardholder agreement and pay attention to due dates, fees, and penalties. Be proactive about payments, avoid fees, and stay informed to protect yourself.
Remember, time heals. Your credit score will improve over time whether or not you open new credit accounts. It’s not necessary to rush into getting a new credit card right away.
If you need help navigating the world of credit post-bankruptcy, we’re here for you. As a law firm that has worked with both debtors and creditors, we understand the challenges involved. We have helped countless clients reestablish their credit after bankruptcy and can offer guidance on how to choose the best credit options for your situation.
If you need advice about what type of credit to get or need assistance with your debts, don’t hesitate to call the law firm of Busby & Associates.
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