Getting a credit card for bankruptcy or immediately afterward is incredibly difficult. Almost all unsecured credit cards are off-limits, and even most secured cards are out of reach. This leaves only a few options: a short list of pre-approved credit cards, prepaid debit cards, and checking accounts. Some card issuers take advantage of the desperation that follows bankruptcy, and offer credit cards that are at best ineffective and at worst outright scams.
Horizon Credit Card: Also known as the Horizon Gold, this is one of the most misleading cards. It promises a “guaranteed $500 unsecured credit limit,” and no credit check, but the card is only a version of a retail credit card, useable only at the Horizon Outlet. It doesn’t help rebuild your credit, and comes with any number of heavy fees. Many consumers complained that they were unable to cancel the card when they found out they’d been had. Buried in the disclosures is this warning: “Horizon Card Services is not a credit services organization, banking institution or insurance company.” Just as Horizon isn’t a bank, its card isn’t a credit card.
Net First Platinum: You wouldn’t know it looking at the website, but Net First Platinum is still issued by Horizon Card Services. The same warnings apply. On NetFirstPlatinum.com, a woman holds what’s presumably the credit card. Where the card’s network – Visa, for example – should be, there’s a gray smudge that looks suspiciously Photoshopped.
First Premier Bank: First Premier offers the Aventium and Centennial credit cards. Unlike Horizon, they’re actually credit cards, but they come heavily laden with fees and high interest rates. The interest rate starts off at 49.9% (twice the average for bad credit) and if you want to lower it later on, you’ll have to pay a fee equal to a fourth (25%) of the increase. The card also charges the maximum amount in fees permitted by law.
First Premier does not apologize for these rates, they argue that these rates are transparent, and that unsecured credit card products would not exist for customers with bad credit if rates were not high enough to pay for the added default risk.
Prepaid debit cards: Prepaid debit cards function like regular debit cards: they hold money that you put on them rather than extending you a line of credit, they don’t improve your credit score, and they don’t allow you to spend more than you have. The difference? Prepaid debit cards come with myriad fees. The Walmart MoneyCard, for example, charges $3 to load the money via check, $2 to withdraw money from an ATM, and if you get a personalized card (a $3 fee on its own) you’ll have to pay $3 each time you reload it, no matter where or what method you use. Steer clear of prepaid debit, and get a regular checking account instead.
Prepaid debit card lobbyists argue that banks charge overdraft fees (though they leave out that you must opt in to paying the fees these days), and thus end up being more expensive than prepaid debit cards much of the time. Also, free checking accounts are becoming harder to come by given that the financial reform legislation in Congress that looks to lower debit card swipe fees.
The Better Options:
Unfortunately, you’re unlikely to qualify for a regular, unsecured credit card right out of bankruptcy, and banks are terrified of lending to anyone who might be a credit risk. Many banks won’t approve you for a secured credit card until you’ve been out of bankruptcy for a year or so. However, some still do: Capital One and HSBC have no automatic disqualification period after bankruptcy. Among the best secured credit cards is the Capital One Secured MasterCard: its $29 annual fee, among the lowest.
Secured credit cards build up your credit score, so eventually you can “graduate” to an unsecured card with higher credit limits, lower fees and better rewards. If you’re willing to pay a higher fee, you can also consider the Orchard Bank MasterCard, which is among the easiest cards to qualify for. You do need an annual salary of at least $12,000.