Do's and Don'ts for Credit CardsImage Source: Flickr CC User Yoel Ben-Avraham
When you’re rebuilding your credit score after bankruptcy, you'll typically start by opening a secured card – but eventually, you'll have to move on to an unsecured one. How do you know when you’re ready, and how do you make the move from secured to unsecured credit cards? Here are five do’s and don’ts as you get ready to take this step.
#1 Do Your Prep Work with Your Credit Reports
If you’ve obtained a secured card and have used it and made regular on-time payments, you should be off to a good start. But before you make the move to an unsecured card, you need to understand where you stand. Pull copies of all three of your credit reports – Transunion, Equifax, and Experian. Check for errors and make sure accounts that should show a zero balance because of your bankruptcy case are, in fact, listed this way. Clean up any issues before you start applying for an unsecured card.
#2 Don’t Cancel Your Secured Credit Card
One of the components of your credit score calculation is your average age of credit. Because your secured credit card is likely your oldest post-bankruptcy credit (unless you have a mortgage or auto loan), if you close the secured account when you get an unsecured card, your average age of credit will fall and your credit score will plummet. It’s best to leave the account open and just use the card minimally to keep it active.
#3 Do Your Research
You should not apply for credit cards that you won’t qualify for, but how do you know which cards you can get? Nerd Wallet has a great comparison tool for credit cards that can help you find cards for your credit score bracket. But credit score isn’t the only factor. Some card issuers will also consider how many inquiries are on your credit report, how many new accounts you’ve opened recently, and how fresh your bankruptcy filing is.
#4 Don’t Apply for a Ton of Cards at Once
Once you narrow down some credit cards you believe will fit your credit score and profile, you’re ready to apply. Not every card issuer uses the same credit report. As part of your research, you should find out what agency they pull from. You can then apply for three cards – one per agency. If you are turned down for a card, contact customer service and ask if there is another card you qualify for instead.
#5 Do Use the Cards Responsibly
Once you get an unsecured card, use it regularly and never max it out. Pay the balance in full each month. Better yet, pay online during the month before your statement cuts so that you have a zero balance. Always make your payments on time. The combination of regular, responsible usage and prompt payments should result in increased limits periodically. Higher credit limits will help your credit score but should not be tapped for spending.
Bonus tip: Your first call should be to your secured card issuer to see if you can convert your secured card to an unsecured credit card. This may not even involve a hard inquiry on your credit report since card issuers routinely monitor credit scores and will already have your info on hand. This may be the simplest (and fastest) way to get an unsecured card. If the issuer won’t convert, ask if they have an unsecured card you qualify for in addition to your secured one.
To find out more about improving your credit score after bankruptcy, contact Credit Score Keys today!