The District of Colorado Bankruptcy Court reported 8,512 Chapter 7 and 2,463 Chapter 13 filings in 2022. Bankruptcy can be a blessing when you find yourself in a precarious financial situation.
After the discharge of your case, rebuilding credit is an important step in getting your financial life back on track. One common option that comes up is whether to get a credit card.
Advantages of using credit cards
Responsible use of a credit card, such as making timely payments and maintaining a low balance, demonstrates your financial responsibility to potential lenders. Moreover, using a credit card responsibly can improve your credit utilization ratio, which measures the amount of credit you are using compared to your credit limit. A lower ratio is a positive factor in your credit score.
Credit cards also offer the convenience of making payments, shopping online and building a positive payment history, provided you manage them responsibly.
One significant drawback is the likelihood of high interest rates. Cards marketed to individuals with poor credit often come with higher interest rates, which can be financially burdensome if you do not manage your debt carefully.
Additionally, credit cards for those with less-than-perfect credit often come with various fees, such as annual fees or application fees. These fees can add to your financial burden, especially if you are trying to recover financially after bankruptcy.
There is also the risk of falling into impulsive spending habits. Having a credit card can tempt you into making purchases you cannot afford, which can lead to more financial trouble. To avoid this, you need to exercise discipline and not exceed your budget.
If you are wary of obtaining a credit card post-bankruptcy, there are alternative methods to rebuild your credit. Options include a credit-builder loan or becoming an authorized user on someone else’s credit card account. Regardless of how you go about it, rebuilding credit is a gradual process that requires patience and discipline.