After bankruptcy or another financial crisis such as being sued by a creditor, getting a major credit card might be the last thing someone wants to consider. However, it is key to learn how to responsibly manage credit and also have your credit report reflect that you have learned from past mistakes and misfortunes. A good credit rating is essential to finding an apartment, buying a house, purchasing a car, and even getting some jobs. Starting slowly and making steady progress is a solid investment in the future. There are a number of credit options for restoring credit after bankruptcy and other negative credit events.
The easiest first step to take is getting a secured loan. A secured loan is a little known way to safely reestablish credit, especially after bankruptcy. How it works is you go to a local bank or credit union and ask the loan officer for a secured loan. Most banks will not do a credit check, since you are borrowing against your own money.
Deposit $500 to $1,000 into a savings account. Tell the banking representative you wish to borrow the same amount. He or she will “loan” you the same amount, effectively giving you your own money bank. Now every time you make a monthly payment on the loan account, that same amount of money will “unfreeze” in your savings account. Hence, you will be able to borrow against your own money and pay only a small percentage in interest, usually three to four percent. It is also safe as long as you remember to “pay” on time, and will report to credit bureaus as a positive loan account.
Getting a Major Credit Card
Once you have made a couple of on-time loan payments, you will want to get a major credit card. Beware, as many bad credit options have very high fees that you never get back. The best unsecured credit card comes from Orchard Bank. They usually start most clients off with a $300 credit line on a MasterCard.
Another choice is to get a secured credit card from banks such as Wells Fargo, U.S. Bank, or Bank of America. However, you will have to make a savings account deposit equal to the credit line you want. For example, a $500 credit limit requires a $500 security deposit in a savings account. Unlike the secured loan, however, you cannot access this money. It is held as a frozen savings account for you until the bank decides you can be trusted with an unsecured card, or you close the account. However, a secured credit card is still a good way to establish payment history and still have a major credit card with the ability to make car rentals and airline reservations.