How to Get a Credit Card After Bankruptcy

Is it Possible to Get a Credit Card After Bankruptcy?

Bankruptcy can feel like a tremendous setback, but it also offers an opportunity to reset your financial slate and start anew. Among the strategies for rebuilding your credit report in Canada, obtaining a credit card post-bankruptcy is a noteworthy one. But how and when can you achieve this? Let’s explore.

Considering a Credit Card After Bankruptcy: A Good Idea?

While it’s true that mismanagement of credit card debt may have led to bankruptcy in the first place, it doesn’t mean credit cards should be forever banished from your financial life. Managed responsibly, a credit card can become an effective tool for credit rehabilitation.

A secured credit card, especially, can be a beneficial choice as long as you don’t overspend and pay off the balance promptly. Such actions send positive signals to banks and lenders, indicating your renewed financial responsibility and gradually boosting your credit score.

However, remember that prepaid credit card activity doesn’t get reported to credit bureaus, and hence, will not aid in improving your credit score.

When Can You Get a Credit Card After Bankruptcy?

Bankruptcy will remain like a shadow on your credit report for six to seven years post-discharge, assuming it’s your first bankruptcy. This may cause some lenders and banks to hesitate when you apply for a loan or credit.

However, the silver lining is that you can apply for a credit card as soon as you’re discharged from bankruptcy. An unsecured credit card might take a couple of years to secure and will depend largely on the lender or bank you’re applying to.

Strategies to Secure a Credit Card Post-Bankruptcy

Securing a credit card after bankruptcy in Canada might seem like a daunting task, but a few strategic steps can increase your chances. Here are some key pointers:

1. Obtain an Updated Credit Report

Before you start your quest for a new credit card, ensure your credit report is current and accurate. This provides banks and lenders with up-to-date details of your financial past. You can request this report from credit bureaus like Equifax and TransUnion.

2. Rectify Any Errors on Your Credit Report

Post-discharge, your credit report should ideally not list any debts, barring any outstanding secured debts that bankruptcy did not cover. If you spot any discrepancies, notify the credit bureau promptly. They can then rectify the errors or validate the listed information.

What Type of Credit Card Can You Get After Bankruptcy?

Your options might be limited post-bankruptcy, but you can still secure a few types of credit cards to help rebuild your credit. Remember, the key is to pay off your card monthly (or at least make the minimum payment) to enhance your credit report.

1. Secured Credit Cards

If you can present an accurate and current credit report, you may apply for a secured credit card. This application process typically involves paying an upfront security deposit, often around $500. This deposit acts as a safeguard for the lender in case you default on your account.

Once approved, you can use your secured credit card like any other. Ensure to pay it off fully and promptly. Demonstrating timely full payments for a few months may even get your deposit back.

2. Prepaid Credit Cards

If securing a credit card from a bank or lender proves challenging, consider a prepaid credit card. You provide a deposit, which becomes available through the card. Using a prepaid credit card responsibly is another way to rebuild your credit.

3. Online Debit Cards

If neither a secured nor a prepaid credit card suits your needs, most banks also offer online debit cards. These work similarly to debit cards, with money being immediately deducted from your bank account upon use. You must have sufficient funds in your account to make purchases.

4. Unsecured Credit Cards

An unsecured credit card is the most common type of credit card. While securing one post-bankruptcy can be challenging, it’s not impossible and is a great way to rebuild your credit. Often, unsecured credit cards are offered to those who have demonstrated full repayments on a secured credit card. With an unsecured credit card, no security deposit or prepayment is required, and you might receive a higher balance and potentially a lower interest rate due to reduced risk.

Dealing with Credit Card Rejection After Bankruptcy

It’s possible to face rejection when applying for a credit card after bankruptcy. However, there are always alternatives available. Secured credit cards, prepaid credit cards, and online debit cards can all come to your aid.

Working with a licensed insolvency trustee can also be beneficial. They can guide you through the bankruptcy process and help you secure a credit card. Remember, the primary reason for most rejections is the presence of bankruptcy on your credit report for 6-7 years. This period is when your credit score is at its lowest, and hence, acquiring an unsecured card becomes more challenging due to increased risk for lenders.

Conclusion

Rebuilding your financial life after bankruptcy might seem like an uphill task, but with the right strategies and support, it’s entirely possible. Securing a credit card is a crucial step in this journey. While challenges may arise, remember that every step you take towards financial responsibility brings you closer to a stronger credit score and a brighter financial future.

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