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Are Credit Cards After Bankruptcy a Good Idea?

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The question of whether to seek credit cards after bankruptcy is one that is on the minds of most debtors. After all, for many people, the inability to handle credit cards was a contributing factor to the bankruptcy in the first place. However, in the long run, credit cards after bankruptcy are not only a good idea, they are a necessity.

Why Are Credit Cards After Bankruptcy Important

The three digit credit score assigned to every individual is studied by more than lenders. Landlords, utility companies, insurance companies and even employers rely in part on this measurement of credit worthiness. The higher the credit score, which ranges between 350 and 800, the lower the cost for loans, ranging from car loans to mortgages. Because a bankruptcy is perhaps the biggest negative blow to a credit score, it is important for debtors emerging from bankruptcy to rehabilitate their credit score.

How do Credit Cards After Bankruptcy Help Credit Scores

There are 5 elements that make up the credit. Two of the biggest parts of a credit score are payment history and the amounts owed on your credit cards. Those elements include:

  1. Payment history - 35 percent
  2. Amount owed - 30 percent
  3. Length of credit - 15 percent
  4. New Credit Accounts 10 percent
  5. Types of Credit in Use - 10 percent

The bankruptcy will jolt your credit score, lowering it in some cases into the 400s, experts say. Getting another credit card, which can be difficult because cards are usually canceled after a bankruptcy, even by companies that didn't have any debt liquidated, is a crucial way to improve the credit score. Without a credit card, a debtor emerging from bankruptcy is unable to score points in virtually any of the five categories. No cards means no additional payment history, the top factor on the list, for example.

In order to improve credit scores, experts recommend debtors get a card - most individual debtors are solicited by credit card companies after filing for bankruptcy. An unsecured card may be difficult to get for a while, but one alternative is to put down a deposit and get a secured card if no other is available. Many financial experts recommend that cardholders make a single charge each month and then pay off the entire balance. Also, it's important to make sure that the card chosen reports to all three credit bureaus. Over time, your credit score will slowly but surely rise, with many debtors reporting scores at 700 or above within a year.

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