Bankruptcy Law Blog

Monday, November 21, 2016

Why do credit card applications get rejected? It's not the reasons you think.

How can you rebuild your credit after bankruptcy?

People often wonder, “what’s next” after filing for bankruptcy. It’s a valid question after hitting that financial reset button. The short answer is: rebuild. The long answer is a little more complicated than that. Rebuilding takes time, and it does not start with applying for new credit cards right away.

According to the most recent information from the Federal Reserve Bank of New York, 15% of all credit card applicants were rejected for a new credit card this past June. There can be a significant amount of shame that accompanies such a rejection, because most people are under the mistaken belief that all people who are rejected by a credit card company are financially irresponsible.

The truth is, credit card companies reject applicants for a number of reasons, which may have little to do with their fiscal responsibility. Here are the main reasons credit card companies reject applicants:

  • Credit score too low (under 600 generally)
  • Too much debt
  • Debt to income ratio too high
  • Little to no credit history
  • Bankruptcy

So many factors play into these reasons, that it is simply unfair to ascribe the title “fiscally irresponsible” to someone who has been rejected by a credit card company.

So, you’ve filed for bankruptcy, now what?

I know, we just listed bankruptcy as one of the reasons that credit card companies reject people, but hear us out. While a recent bankruptcy may be an initial deterrent for some credit companies, that effect diminishes over time. You are in no way prohibited from owning a credit card for the 10 years your bankruptcy remains on your record.

Rebuilding your credit after bankruptcy is possible, if you stick to some basic tenets of financial management.

  1. Create a workable budget and stick to it.
  2. Spend a good 6-12 months socking away as much as you can in savings. Consider placing a percentage of your paycheck into savings automatically each month.
  3. Avoid using Payday loan services. If you have an emergency, dip into your savings, but only for true emergencies.
  4. Review your free annual credit report and dispute any discrepancies you find.
  5. Apply for a secured credit card or loan using some of that savings.
  6. Ask a family member or friend to co-sign on a loan for you.
  7. Make your payments every month without fail.
  8. Keep your credit balances low – 10-30% is advised.

As you move through these steps, your credit score will increase and lenders will see you as a more viable risk.

Are your finances stressing you out?

If you are in a tough financial situation and may be faced with losing your home, bankruptcy may be an option for you. The experienced Alabama bankruptcy lawyers at Padgett and Robertson can assess your situation and provide you with expert advice on how to save your home in bankruptcy. Call today at 251.342.0264 for a consultation.

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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”

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