Dear Opening Credits,
I filed for bankruptcy in March 2016 and got my discharge form in July 2016. I have currently applied for a few credit cards, for example, Capital One, that claims to help you rebuild credit, but I keep getting denied. I don't know what to do? – Elizabeth
Dear Elizabeth,
I’m afraid your credit rating is still reeling from the very recent bankruptcy filing, and it is having a major impact on your ability to qualify for certain credit cards. However, so is your approach.
This is what’s going on and what you can do about it.
Because lenders value payment history as a top priority, both FICO and VantageScores rank it as the most important scoring factor. The Chapter 7 bankruptcy notation indicates that you did not pay as agreed, so it is negatively affecting your scores. Any delinquencies and collection activity that may have preceded filing are hurting them, too.
The Chapter 7 bankruptcy will be reported on your credit reports for 10 years and most other derogatory information, such as late payments and charge-offs, remain for seven years. The damage these dings cause is most egregious in the first 24 months, though. After that, it begins to taper off.
Unfortunately, you’ve been exacerbating your scoring problems. Pursuing any kind of credit too often and in a short span of time will result in waning scores, especially when you don’t have any positive data being listed.
For this reason, you must stop applying, at least for the moment. Check your FICO or VantageScores to see where you stand so you can target the right credit cards for you, now and into the future. Both rating systems start at 300 and top out at 850, but don’t panic if your numbers are paltry. You can strengthen them.
First, if you have any debts that you couldn’t discharge in the bankruptcy (such as mortgage arrearage and student loans), get back on track with payments and payoffs. That will reflect positively on your reports and your scores will rise.
After that, edge your way in to the borrowing world.
Unsecured credit cards are great, but they’re not for everyone. The better cards require high credit scores and you may have been applying for them. Instead, focus on cards that will accept much lower scores (whatever is in your range). Typically, these are collateralized accounts called secured cards. As long as you have a stable income, you can probably qualify for one. Check out super basic unsecured credit cards, too. If the offer explicitly states that the type of credit needed is “bad,” you should be eligible.
You can also consider credit builder loans, which are secured loans you take out through a bank or credit union. By paying off the loan on time every month, you can help rebuild your credit.