Q. I am halfway through a five-year chapter 13 repayment plan, after which the balance of prior debts will be discharged. I want to rebuild my credit but the balances owed to creditors involved in the bankruptcy still show as active and unpaid, so I am finding it difficult to acquire a credit card that doesn’t require a huge deposit or have a giant interest rate. I have an auto loan that started prior the filing and have never missed a payment. Any advice on improving my score so I can get a decent credit card?
— Serious about credit
A. There are ways you can improve your credit so you can hopefully find a reasonable credit card.
First, your Chapter 13 bankruptcy stays on your credit report for seven years.
One way to start is with a secured credit card that doesn’t check your credit, said Beverly Harzog, a consumer credit expert and bestselling author.
But as you saw, secured cards may require high deposits and have high interest rates.
Some of these lenders are predatory, Harzog said.
“At this point, the interest rate on the card is secondary because your goal is to rebuild your credit history,” she said. “So make a vow that you won’t carry a balance on the card. Then the rate won’t matter.”
If there’s someone in your life who has stellar credit, Harzog said you could talk to them about making you an authorized user.
Another option is to get a credit-building loan from your bank or from a credit union, she said.
“You will also get a score bump if pay your car loan responsibly. Be patient because as you get closer to the seven-year mark, the negative impact will be smaller and smaller,” she said.
It’s important to note that if you’re looking for a traditional credit card, or any other extension of credit during the pendency of your Chapter 13 case, you will most likely need to seek bankruptcy court approval, said Ilissa Churgin Hook, a bankruptcy attorney and member of Hook & Fatovich in Wayne.
“Prior approval by the court for financing or extensions of credit is often required because a Chapter 13 debtor’s post-petition income — which will be used to pay down the new debt — constitutes property of the debtor’s bankruptcy estate,” Hook said.
Generally, financing and/or credit agreements will be approved where the debtor is able demonstrate that the new debt obligations will not adversely affect the debtor’s existing Chapter 13 Plan obligations, she said.
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