How Bankruptcy Can Affect Your Credit Rating

Bankruptcy is perhaps one of the most severe financial setbacks you can experience, and it can take some time to recover. Credit cards can help you with this, but do remember that it’s illegal to apply for one if you are classed as an undischarged bankrupt.

What is bankruptcy?

The word bankruptcy comes from two old Latin words: bancus (a bench or table, much like those used by the very first bankers) and ruptus (broken; a banker would literally break his bank in order to indicate that it was no longer in any fit condition to do business). It denotes the legal status of a person who cannot afford to repay their debts to their creditors. Not surprisingly, this can cause significant problems if you are trying to get credit.

What are your options if you are bankrupt?

If your discharged bankruptcy and any other things that might adversely affect your credit history (such as country court judgements) happen to have been incurred more than five years ago then a credit card is likely to be a very legitimate option for you. It is still possible to get one while paying off past credit, but your credit rating will be checked in order to find out whether you often miss payments or make them late, as well as how much debt you are in and how much you are paying out for it.

What is taken into account if you apply for a credit card after being declared bankrupt?

  • Credit rating – Self explanatory.
  • Current level of debt – Otherwise known as indebtedness.
  • Bills and other payments – As well as utility bills and similar, lenders will often take note of how much you pay towards your existing debts each month.

Using credit expert websites in order to check your credit score can really help in you keep track. You can even write to the credit reference agency if you dont have access to the internet, email or a computer; they are obligated to reply to you within seven days.

Bad credit history credit cards have higher interest rates and lower credit limits than their mainstream counterparts. However, these are a far better option as you have far less risk of rejection as well as an opportunity to rebuild your credit rating over time. Prepaid credit cards are also a good option for those who have been declared bankrupt, giving you a small loan of sorts while helping to repair your credit rating as you pay your monthly fees.

Fabio Webb agrees that the careful use of credit cards after bankruptcy can help you build up a better credit score.