How to Get Approved for a Credit Card after Bankruptcy

Getting approved for a credit card after bankruptcy can be the first step to rebuilding your credit. You will have a more difficult time getting approved for an installment loan, like an auto loan, than a credit card, which is a revolving line of credit. There are a number of reasons why it is easier, but you will still need to be aware of the steps to take in order to prevent rejection.

Why Revolving Debt is Easier to Obtain

The main reason it is easier to get a revolving line than an installment loan is the option to have a variable interest rate. Variable interest rates fluctuate over time, and they tend to favor lenders. Most installment loans are given on fixed rate terms; this is particularly true now that sub-prime loans are generally not extended. Lenders prefer to give variable rate loans to bad credit borrowers. This creates an accountability system for the borrower as failing to pay bills will raise their rates. It also allows the lender to assess higher fees if the borrower begins acting irresponsibly, negating the effect of charge-offs.

Credit cards may also be extended with lower limits than most installment loans. Even used auto loans may be a few thousand dollars minimum. A credit card, on the other hand, can have a $500 or $1,000 limit. This truly reduces the lender's exposure to risk while presenting a strong opportunity for gains. After bankruptcy, the first loan you will likely qualify for will be a credit card loan.

Steps to Get Approved

Getting approved is the hardest part of the process. Here are a few tips to make the process easier.

  • Opt for a secured credit card using an asset. This may not be possible after bankruptcy if all of your assets have been liquidated. If you have gone through a Chapter 13 reorganization rather than a Chapter 7 liquidation, though, you likely maintain some assets. Any asset, including an automobile, home equity, stock certificate, business or commercial equipment may be used.
  • Look for low limits. Requesting a very small line originally opens the door, and then you can request increases as you use the credit responsibly. Most credit card companies make it easy for you to increase your credit limits through a simple online application process. In fact, if you pay your balance each month, your company may even offer to increase your limits without you asking.
  • Use the bank where you currently hold an account. Banks that can verify your income and average daily balance easily are more likely to extend you credit than those that have to go outside of their institution to do so. This is particularly true if you have a savings account. A savings secured loan is a unique type of secured credit line. Instead of draining your account to make purchases, you can use the funds you have saved to get a credit line. Since the savings continue to grow in the account, you can deduct this earned interest from the card's interest to reflect a much lower actual interest rate.

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