Suppose you have recently filed for Chapter 13 or Chapter 7 bankruptcy. In that case, you may be wondering how it will affect your creditworthiness and your ability to increase the limit on your secured credit card. In this article, we will explore the relationship between secured credit card limit increases and bankruptcy and provide some tips on how to improve your credit score after bankruptcy.
Understanding Chapter 13 and Chapter 7 Bankruptcy
Before we dive into the specifics of secured credit card limit increases, it’s important to understand the basics of Chapter 13 and Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is also known as a “wage earner’s plan” and is designed for individuals with a regular income. It allows individuals to create a repayment plan to pay off their debts over a period of three to five years. This type of bankruptcy is often used by individuals who have a steady income but are struggling to keep up with their debt payments.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as “liquidation bankruptcy” and is designed for individuals who have little to no income and are unable to pay off their debts. In this type of bankruptcy, a trustee is appointed to sell off any non-exempt assets to pay off creditors. Any remaining debts are then discharged, meaning the individual is no longer responsible for paying them.
How Does Bankruptcy Affect Your Creditworthiness?
Filing for bankruptcy can have a significant impact on your creditworthiness. It will remain on your credit report for up to 10 years and can lower your credit score by 200 points or more. This can make it difficult to obtain credit or loans in the future.
However, it’s important to note that the impact of bankruptcy on your credit score will lessen over time, especially if you take steps to improve your creditworthiness.
Secured Credit Card Limit Increases and Bankruptcy
A secured credit card is a form of credit card backed by a cash deposit from the user, which serves as collateral. Generally, the credit limit available on the card is directly proportional to the size of the deposit. This card functions similarly to a standard credit card in terms of usage.
One of the main benefits of a secured credit card is that it can help individuals with poor credit or no credit history to build or rebuild their credit. However, if you have recently filed for bankruptcy, you may be wondering if you can still increase the limit on your secured credit card.
The answer is yes, but it may be more challenging than it would be for someone with a good credit score. Here are some tips to help you increase the limit on your secured credit card after bankruptcy.
Make Timely Payments
The most important factor in improving your creditworthiness after bankruptcy is making timely payments on all of your debts, including your secured credit card. This shows lenders that you are responsible and can be trusted to make payments on time.
Keep Your Credit Utilization Low
Credit utilization refers to the amount of credit you are using compared to the total amount of credit available to you. It is recommended to keep your credit utilization below 30% to maintain a good credit score. This means if you have a secured credit card with a limit of $500, you should try to keep your balance below $150.
Apply for a Credit Limit Increase
After making timely payments and keeping your credit utilization low for a period of time, you may be eligible for a credit limit increase on your secured credit card. This will not only give you access to more credit, but it will also improve your credit utilization ratio, which can positively impact your credit score.
To apply for a credit limit increase, contact your credit card issuer and ask about their process. They may require you to fill out an application or provide proof of income. Be prepared to explain your bankruptcy and how you have improved your financial situation since then.
Be mindful that there are instances where your credit limit may automatically increase.
Consider a Secured Credit Card Upgrade
If you have been making timely payments and have a good credit utilization ratio, you may also consider upgrading to an unsecured credit card. This means you will no longer need to provide a security deposit, and your credit limit may increase. However, this will depend on your credit card issuer’s policies and your creditworthiness.
I recommend to read step by step guide on legal aspects of International Secured Card usage before jump in to the next section.
How to Improve Your Credit Score After Bankruptcy?
In addition to following the tips mentioned above, there are other steps you can take to improve your credit score after bankruptcy.
Check Your Credit Report for Errors
It’s important to check your credit report for any errors or inaccuracies regularly. If you find any, you can dispute them with the credit reporting agency to have them removed. This can help improve your credit score.
Build a Positive Credit History
After bankruptcy, it’s important to start building a positive credit history. This can be done by making timely payments on all of your debts, including your secured credit card, and keeping your credit utilization low. Over time, this will show lenders that you are responsible and can be trusted with credit.
Consider a Credit Builder Loan
A credit builder loan is a type of loan that is designed to help individuals build or rebuild their credit. The loan amount is typically small, and the borrower makes monthly payments until the loan is paid off. The lender reports the payments to the credit bureaus, which can help improve your credit score.
Conclusion
Filing for Chapter 13 or Chapter 7 bankruptcy can have a significant impact on your creditworthiness. However, by following the tips mentioned in this article, you can improve your credit score and increase the limit on your secured credit card. It’s important to remember that rebuilding your credit takes time and patience, but with responsible financial habits, you can achieve a good credit score once again.
