It’s Friday, so it’s time for this week’s reader-submitted Q & A. If you’d like to submit a question, click here for more information or simply email a question.
In June 2006, I declared bankruptcy. I took it seriously and have reformed my financial ways. I now have a reasonable paying job, live within my means, have 6 months emergency funds saved, have insurance of various forms, good medical benefits and, can you believe it, am paying maximum amounts into employer matched retirement program. What I cannot figure out is how to get a credit card (I have a debit card w/my checking account). Although I suspected it would not work, I did apply for one 6 months ago and was declined. How do I start to rebuild my credit?
–Lisa W., Sacramento, CA
STRAIGHTFORWARD ANSWER: By applying for and properly managing a secured credit card and installment debt, you can rebuild your credit.
More detailed explanation:
Given that your bankruptcy declaration was less than two years ago, you’re doing really well. You’ve really established some solid financial habits! So congratulations for what you have accomplished so far, as well as for recognizing the importance of rebuilding your credit.
As you’ve discovered, it can be difficult to obtain credit after a bankruptcy. But there are some strategies that will help you do so. First, the credit card. When you were denied, you were probably applying for the typical unsecured credit card that most of us carry. But coming out of a bankruptcy, you may have a better chance of approval by applying for a secured credit card. (The difference? Secured cards are sort of like a pre-paid card. The “security” is for the lender. You’ll hand over about $500 and you’ll have a limit of that amount.) Here’s a good article with tips for acquiring a secured credit card.
When you get the credit card, use it wisely. I don’t know why you declared bankruptcy, but credit cards are a cause, or at least an exacerbating factor, for many people. Use the card regularly, but use as little of the credit limit as possible. Perhaps one or two transactions a month and pay the entire thing off every month. This combination, available unused credit along with timely payments will help raise your credit score.
Installment debts, such as car loans, student loans, and, yes, even mortgages will also help. I know it’s crazy but you may be able to get a mortgage, even though you were declined for a credit card just six months ago.
Some other considerations:
- When you apply for credit cards, don’t apply to a whole bunch at once. It’s like creating ten different dating profiles on the same web site. Kind of makes you look desperate.
- Pay your bills on time all the time. Nothing matters more when rebuilding your credit.
- Remember what got you into trouble the first time and do everything you can to avoid the temptation or the possibility of repeating the same mistakes.
- Review the terms of any credit offer. Not every offer is a good one. Although you may not receive the same terms as you did prior to your bankruptcy, not every offer is the best offer–nor the last.
- Talk to your bank or credit union. These folks are most familiar with your new, well-designed financial habits. You may receive extra consideration there.
- Keep your head up. You are well on your way to a full financial rebound!
“personal finance” 
“financial education”
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I really like your description of applying for too many credit cards simultaneously — that’s a great way to put it. Looking desperate can be a serious deal breaker when it comes to your credit history.