After Bankruptcy: Avoid High-Fee Credit Cards

For various reasons, most are eager to re-establish credit. It may be in an effort to rebuild credit scores so as to qualify for a mortgage or low-rate automobile loan; it may be the need for a credit card for transactions like hotel reservations and car rentals; it may simply be that the consumer is in a hurry to "start over" financially.

Whatever the motivation, the knowledge of limited options and a sense of urgency are a dangerous combination.

One of the most frequently offered options for post-bankruptcy or other high risk credit applicants looks and works just like any other major credit card, but costs far more.
One issuer of major credit cards for those with "less than perfect" credit charges an account set-up fee of $29, a program fee of $95, an annual fee of $48.00 and an annual participation fee of $72.00.

Of course, the consumer doesn't get to know what his credit limit will be before applying, except that it will be at least $250.

With a $250 credit limit and the above terms, a borrower will have $72 in available credit-and an outstanding balance of $178!

Taking on debt and getting nothing in return is a bad move for anyone trying to impose order on his financial life, but in this case, the harm is even greater.

One of the main purposes of applying for credit cards after bankruptcy is to re-establish credit, but carrying a high balance relative to available credit hurts credit scores.