Unlike Chapter 7 bankruptcy where your debts are dissolved by court order, a Chapter 13 bankruptcy gives you the opportunity to pay back some of those debts through a specific payment plan. However, your credit is still marred by the bankruptcy reporting, making credit difficult to come by.
Why Am I Being Declined For A Credit Card?
Although you’re currently repairing your credit through on-time payments to your creditors, brand new credit applications are almost always declined. Especially applicable in the early stages of Chapter 13, new credit applications cannot be processed because of your income to debt ratio. Most of your income is promised for the next five years, on average, to past creditors. There’s simply no room to acquire more debt through a new credit card. Creditors look over your history and income levels, effectively determining that it’s not possible for you to pay any more debt each month.
If I’m Showing Responsibility Through My Bankruptcy Payments, Why Is Credit Still Hard To Come By?
It’s not just your history that creditors analyze, but also your FICO, or credit score. Chapter 13 drops this value down substantially. In today’s lending world, banks are wary about providing credit to anyone that doesn’t have a stellar credit record. Although you’re showing responsibility with payments, the credit score needs several years of on-time payments to slowly rise to a better value. Once your debts are paid off through Chapter 13, you should see a relatively sharp increase in your score. Credit will be easier to secure after the payments are complete.
What About Secured Cards?
One of the best ways to secure your credit future is using secured cards. Unlike traditional credit, secured cards require collateral. For example, you place $500 on a secured card. You’re able to charge items to the card until you hit the $500 “limit.” To use the card again, you need to place more money back on it. This credit-building strategy shows that you have the funds and responsibility to hold credit again. Once you use the secure card for a time, you can try applying for a traditional card. Your responsible history can help you rebuild your credit.
For any questions about your credit repair or Chapter 13 bankruptcy, contact the Law Office of Julio E. Portilla P.C. at 212-300-6832 to discuss your matters privately with effective results.