Capital Investment Advisors

Will a new card restore my credit after bankruptcy?

Dear Opening Credits,
I went through a Chapter 7 bankruptcy five years ago, and now want to get a credit card to establish credit again. I recently received a Capital One prequalification offer for a card with a 23.99 percent APR and no annual fee. What is my best option? I have no debt, and I keep a balance of at least $1,000 monthly in my checking account. I’m drawing my Social Security disability check now.  – Grant

Dear Grant,
As long as the credit card issuer reports payment activity to the credit reporting agencies – and Capital One certainly does – you certainly can use the account to repair your credit rating.

The interest rate on the Capital One card is definitely on the high end, but that’s most likely due to the fact that you have what is considered “bad credit” due to your bankruptcy. The average card APR for people in this category is currently 23.59 percent.

Still, the interest rate doesn’t matter if you always send the exact amount you charge by the due date. That figure will be listed on your bill as the total balance. Just ignore the figure listed as “minimum payment due” and send every penny of what you charged that month. This way you will zero out the account and avoid being charged any financing fees.

How a new card can help your score

Because you’ve been prequalified, you stand a good chance of being approved if you apply. It’s not a guarantee, but an indication that the issuer is probably willing to extend you a line of credit based on a soft credit check.

Many lenders frequently review consumers’ credit histories to see who might be an appropriate candidate for one of their card accounts. Only when you complete the application and list your financial information will the lender conduct a deeper analysis. Once you apply, your credit report will indicate a hard inquiry, which will usually result in a slight but temporary effect on your credit scores.

Chapter 7 bankruptcies remain on a credit report for 10 years from the filing date, so you’re at the halfway point. Your bankruptcy is old enough that the credit damage has softened. Credit scores factor in recent data on a credit report as more weighty than what happened many years ago.

Check Out: How do secured card deposits work?

If you’ve been repaying a loan responsibly since the bankruptcy, that could definitely be helping your scores. If you have had no borrowing and repayment activity being reported since the bankruptcy, your scores haven’t been recovering at any great speed. The only thing helping them rise is time itself.

Since you want to get back on track, I recommend you get a credit card and use it to your advantage. The Capital One card is probably fine, but check out’s Card Match program, too, which searches card offers tailored to your credit profile. You may see other cards that could be more appealing. There is no credit score ding involved, so don’t hesitate to do some research.

Note that whichever card you qualify for will most likely come with a small credit limit due to your low credit rating and limited income, but being debt-free will help.

Manage the new card well by not carrying a balance

I’m thrilled you’ve been able to maintain some money in reserve. It shows you’re financially prepared and have been managing your money well since bankruptcy. Having some spare cash on hand can help if an unexpected expense crops up and lessens the need to have to rely on plastic to cover those expenses.

Once you get a credit card, charge no more than 30 percent of the credit limit on a monthly basis. This way you will ensure a credit scoring company won’t calculate your balance when it’s at the high mark, which will negatively affect your credit utilization ratio and hurt your credit score. Pay in full and always on time. In about a year you should see a vast credit rating improvement. Then you might want to add another card and treat it the same way.

When the bankruptcy is dropped from your reports, you’ll have nothing but positive credit activity being listed and your scores should be in fantastic shape!

Check Out: How to manage a low-credit-limit card to boost credit score

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