Getting a credit card after bankruptcy

Applying for bankruptcy can have a big impact on your ability to get credit in the future. But there are options open to you, as we explain.

What is bankruptcy?

Bankruptcy is a legal status for anyone who can’t repay what they owe. If you are declaring bankruptcy, the court takes charge of your assets and uses them to take care of your creditors and your debt. 

Your lender can apply to make you bankrupt, or you can declare bankruptcy yourself. However, bankruptcy isn’t the right solution for everyone. So, if you’re thinking of going down this route, you should seek financial advice first.

How does bankruptcy affect your credit history?

Bankruptcy usually lasts for 12 months but stays on your credit record for six years. This can cause your credit score to drop considerably. It can also make it more difficult to get a credit card, or any other form of credit, such as a loan or mortgage. 

Being bankrupt shows you’ve struggled to repay your debts. This can prevent other lenders from letting you borrow money due to concerns they won’t get their money back.

How to get a credit card after bankruptcy

By law, until your bankruptcy is discharged, you can’t apply for more than £500 in credit without telling your lender about your bankruptcy. Lenders then scrutinise your finances before deciding whether they are happy to let you borrow. 

If you’re borrowing less than £500, you don’t need to tell your lender you’re bankrupt. But they usually find out by running a credit check.

Once you’re discharged from your bankruptcy, you’re released from any debts included in it. However, you’re still likely to find it much harder to qualify for a credit card as lenders view you as higher risk. Those cards you do qualify for may have higher interest rates and lower credit limits.  

It should become easier to get a credit card as more time passes.

Read more: 

• Why can’t you get a credit card?

• Bad credit card habits to avoid

Which credit cards are best for bad credit?

As bankruptcy causes your credit score to drop, it can make sense to look for a credit card designed specifically for those with bad credit. Known as bad credit credit cards, these cards have lower credit limits and higher interest rates. But used sensibly, they can help you to rebuild your credit score over time.

If you use one of these credit cards, it’s best to pay off your balance in full every month to avoid high interest charges. Only ever spend what you can afford to repay and always make your payments on time. As your credit score starts to improve, you can consider applying for a more competitive credit card. 

Read more:

• How long does it take to improve your credit score?

• How to use a credit card

How to rebuild your credit after bankruptcy

Using a bad credit credit card to improve your credit score is just one option. Other ways to rebuild your credit after bankruptcy include making sure you:

Check your credit report

Regularly keeping an eye on your credit report gives you a clear idea of where your credit score sits. 

It’s also important to check your bankruptcy discharge has been included on your credit report and that your report doesn’t contain any mistakes. Even a small mistake in your address can drag down your credit score. If you spot any errors, dispute your credit report and get it updated as soon as possible. 

It’s worth doing this with all three credit reference agencies (CRAs) – TransUnion, Equifax and Experian. That’s because they all hold slightly different information about you. Each CRA must offer you a free statutory credit report. 

Make credit card repayments on time

If you’ve applied for a bad credit credit card, or you’re using an existing credit card, be sure to make your monthly repayments on time. An easy way to do this is to set up a Direct Debit for at least the minimum amount, ideally more. Missed payments lead to late fees and can damage your credit score further.

Don’t make too many credit applications

It’s important to space out credit applications by three to six months. Every time you apply for credit, the lender carries out a hard credit check. This leaves a mark on your credit file. Too many applications in a short space of time can have a bigger impact on your credit score.

When you do apply for credit, use an eligibility checker. This only uses a soft credit check which won’t show up on your credit report. It gives you an idea of the credit cards and interest rates you’re most likely to get.

Keep your credit utilisation rate low

Your credit utilisation rate is the percentage you use of your overall credit limit (the amount of credit you have available to you). This means if you have a credit limit of £2,000 and you use £1,000 of this, your credit utilisation ratio is 50%.

A lower credit utilisation rate can help improve your credit score. Ideally, you want to keep it below 30%, but certainly below 50%. 

How long does it take to rebuild your credit score after bankruptcy?

The length of time it takes to rebuild your credit score depends on your situation. It takes 12 months before your bankruptcy is discharged, but a record of it appears on your credit report for six years. 

However, the impact of bankruptcy on your credit score lessens over time, particularly if you take additional steps to improve it. You should start to see improvements within one to two years. 

Remember that if you are thinking of applying for bankruptcy, you should seek financial advice first. You can contact debt charities such as Citizens Advice and StepChange for free advice. They might offer alternative solutions that better match your circumstances.