Life after bankruptcy can leave consumers with many questions, especially when it comes to rebuilding credit. After a person files, a person’s credit score can drop drastically and stay on their credit report for at least a decade. Having good credit is vital for anyone’s financial health. While bankruptcy can damage credit scores, consumers have plenty of opportunities to improve them. One way consumers can bring it back up is by using a credit card.
Consumers can apply for a credit card after filing for bankruptcy. However, they may only qualify for subprime credit cards, which typically require a security deposit equal to the balance limit. Some people can get unsecured credit cards, but those often come with high interest rates and fees.
Using credit cards to rebuild your credit score
Building good credit doesn’t happen overnight. But by forming these habits, consumers can regain good financial standing:
- Keep within its limits: High balance limits can make people feel like they have unlimited spending power. However, that mentality can put people in financial ruin. When using a credit card, consumers should try to keep their spending well below the balance limit.
- Make full and timely payments: According to FICO, credit card payment history makes up approximately 35% of a person’s credit score. One of the best ways people can maintain that score is by paying off the full balance on time each month.
- Build emergency savings: Even after bankruptcy, life can throw unexpected curveballs. In the moment, it can be tempting to deal with sudden emergencies using a credit card. However, that can bring old financial troubles back to life. Having at least one month’s worth of living expenses can help most people get out of a quick jam. They should try to save up at least 3 to 6 months of living expenses if they can.
Rebuilding financial strength is possible
Bankruptcy is not the end of the road. While many people think their lives are permanently damaged after they’ve filed, that isn’t the case. With a mix of effort and personal responsibility, consumers can get their financial lives back on track.