Light use of credit cards boost your credit

Most recent bankrupts have trouble qualifying for a regular, unsecured credit card. So the best solution usually is a secured card, which generally gives you a credit limit that’s equal to an amount you deposit at the issuing bank.

Typically, that’s $200 to $500, which may seem like a pittance compared with the credit limits you enjoyed before your bankruptcy. But don’t make the mistake of using your available credit. Maxing out your credit cards hurts your credit score.

You don’t want to charge more than 30% or so of your credit limit, and you want to pay the balance off in full each month. Light, regular use of a credit card is what helps build your credit.

And contrary to what you might have heard, you typically don’t need to carry a balance or pay credit card interest to build your score, since the leading credit scoring formula doesn’t distinguish between balances that are paid off and balances that are carried month to month. Get in the habit now of not charging more than you can pay off every month; your credit score and your finances will be the better for it.

You also shouldn’t grab just any secured card. Look for the following:

  • No application fee and reasonable annual fee. Some secured cards tack huge upfront and annual charges onto their accounts; you don’t need to pay these to build your credit.
  • Reports to the major credit bureaus. You’re not doing your credit score any good unless your payment history is being reported to the three major bureaus: Equifax, Experian and TransUnion. Before you apply for a card, call and ask if the issuer regularly reports to all three.
  • Converts to an unsecured card after 12-18 months of on-time payments. Good behavior should get you upgraded to a regular credit card within a year or two.

Schwilm & Lezman, P.A. Bankruptcy Attorneys can answer all your questions and assist you with creating a solution that works for you so you can rebuild your life. Call us for immediate legal assistance at (704) 567-3824 for our Mooresville office. Our experienced attorneys can help you get debt free in these areas: Mooresville, Mount Holly, Gastonia, Gaston, Iredell, Statesville, and Belmont.