• Find out exactly what fees and costs are linked to your account. Try not to be lulled into a false sense of security with terms such as, “No up-front costs.” Many credit cards that target post-bankruptcy and low-scoring consumers add these “processing charges” and “annual fees” directly to your account—which implies that you might receive a credit card with a $250 credit limit and $175 or more in charges that have already been made to the account.
Try to be informed on the penalties for late payments as well as going over your credit limit. Quite often, one late payment can send an account like this completely spiraling out of control. You miss a $50 minimum payment, and then a $35 late charge will be added. As your new credit limit is low, the late charge will puts you over your credit limit, triggering another charge of $35—which, of course, will put you further over your credit limit. By the time your next statement comes around, your $50 minimum payment will have turned into a request for $150 or more in order to “bring your account current.” And also, if you are not able to make that payment, it will just keep on growing. For many post-bankruptcy consumers, that scenario is quite well-known. There will be no room for that kind of error when you try to rebuild following bankruptcy, so be well-assured that you know what kind of charges might apply and what circumstances might cause them.
Try to read the entire agreement with care. It is true that most people try not to read the fine print in all of their contracts, but it’s a gamble—and it will be all the more dangerous when you deal with high-risk lenders. Remember that companies who make loans to low-credit-scoring and post-bankruptcy consumers are taking a chance—and they won’t take that chance without an important payoff. Try to read and understand the entire agreement, and if you do not understand something, ask questions until you do understand.
Watch out for all the common “predatory” practices: People who have previously filed for bankruptcy will often be targeted by predatory lenders, because those lenders know that post-bankruptcy borrowers have fewer options, and that they might be so relieved to discover that they’ve qualified for a loan following their bankruptcy that they won’t be inclined to ask too many questions. Many consumers tend to accept that because they think that accepting extortionist terms is the only way that they’ll qualify for credit following bankruptcy. This is not true. Try to hold out for a reputable post-bankruptcy lender.
Keep reading, go to our next page on bankruptcy recovery: Home Equity Options 4