Avoiding Predatory Credit Building Products After Bankruptcy Discharge In Arizona

It may seem that if there were any specific group to target for their funds, recent bankruptcy debtors would be low on the list due to a lack of financial resources. But even low-income households should be on guard for those looking to swindle what little funds they have. Those familiar with bankruptcy know how important it is to rebuild credit after debt has been discharged. And some will try to take advantage of this fact by offering services and products promising substantial credit boosting after bankruptcy. How can a bankruptcy debtor tell the difference between legitimate and useless credit-building products after obtaining a debt discharge? Are there steps a post-bankruptcy debtor can take without spending money or hiring a service? Read on for more on this topic, especially as it pertains to bankruptcy debtors in Arizona. To speak with an experienced bankruptcy lawyer about your unique situation, call 480-833-8000. 

Secured Credit Cards

Secured credit cards are considered one of the safest ways to rebuild credit after bankruptcy. A secured credit card is a prepaid credit card, typically acquired through your bank. Because it is prepaid, it takes away the risk of overspending that comes with regular credit cards. Secured credit cards rank among the lowest for defaults for credit building methods after bankruptcy. Spending on a secured credit card can rebuild a bankruptcy debtor’s credit slowly and surely. They can come with benefits, like points, that normal credit cards have. But the user should be sure to read the fine print for annual fees and other fees associated with using a secured credit card. This includes checking for a decent interest rate. Most secured credit cards carry interest rates of more than 20 percent. So don’t open or spend on a secured credit card if you aren’t confident that you can pay your full balance each month. After your score improves, you may be presented with the option of converting your secured credit card to an unsecured, or regular, credit card. 

Becoming an Authorized User

Secured credit cards may reduce the risk of overspending, but they still come with costs that may be overly burdensome to a recent bankruptcy debtor. Another way someone who has just cleared their debts with bankruptcy can rebuild their credit history is by being added as an authorized user to someone else’s account. When this is completed, the added user gets a boost to their credit score and is not liable to pay the amount owed on the credit card. The difference between a primary user and a joint user is that only one party is responsible for paying the bill. The primary user on the account can set a spending limit on the authorized user to prevent them running up an unaffordable credit card balance. 

Becoming an unauthorized user isn’t an absolutely zero-risk endeavor for a recent bankruptcy debtor. It can hurt an authorized user’s credit score if the primary user closes the account or removes them as an authorized user from the account. Their credit score can also fall if the primary user doesn’t make full and timely payments on the account each month. Because of how being added as an authorized user can potentially negatively affect that person’s credit score, they should only ask someone trustworthy for the favor. Ask someone who has a long credit history, makes their payments on time, and ideally has a low credit utilization. Recent bankruptcy debtors don’t need any additional factors hurting their credit. Some may be more likely to agree if the authorized user doesn’t keep a card to spend with their person.

Credit-Builder Loans

These loans are sometimes called fresh start loans or starting over loans, so it’s no surprise that they are frequently used by debtors who have recently cleared their obligations in bankruptcy. They are loans that are offered by banks, credit unions, and online financial institutions. A benefit for recent bankruptcy debtors is that they don’t have high credit score requirements, but the debtor must earn a certain amount of money to qualify for their loan. With a credit builder loan, the user pays money each month, but instead of receiving the loan initially, it is received after payments have been made. It is essentially like paying into a savings account and receiving the funds from that account after a set amount of time, except that it can also help build credit. If you plan to use a credit-builder loan, try to find one that reports to Equifax, Experian, and TransUnion instead of a loan that only reports to one of the credit reporting bureaus. This can ensure that you get the most positive impact possible out of a credit-builder loan. Don’t use this kind of loan if you live on a tight budget and can’t afford to not have access to the funds in your credit builder loan for a while. You should also shop around for the best reporting policies and terms, like what happens if you miss a payment. 

Lending Circles

A lending circle can be an either formal or informal group of participants who pool funds and distribute amounts of money until all members have been paid their share. For example, five friends may join together to form a lending circle, each paying $100 per month to the shared pool. If they agree to keep this up, they should each receive a $500 payment every 5 months. This could be based on a schedule, based on members’ goals (like putting a down payment on a house), or based on members’ needs (like paying for a member’s car repairs after an accident). When it is among a group of friends like this, it can increase the social responsibility to pay each month, but doesn’t come with credit building benefits. There are also nonprofit organizations that offer lending circles that do credit report to the three credit bureaus. Like other methods of credit building after bankruptcy, the individual should shop around for plans with the best benefits, and consider other methods if they will need the cash they pay into a lending circle in the near future. 

File for Bankruptcy with Knowledge and Preparation for Before and After Debt Discharge

Bankruptcy is not the end of your financial options and opportunities in the future, but there are some methods that work better than others when your goal is to rebuild credit without accumulating new debt. Carefully scanning the terms and conditions for factors like the interest rate, what happens if you default, how many agencies are reported to, and more can make all the difference when re-establishing yourself after bankruptcy discharge. Everyone is out to make a buck, and there is no exception when dealing with debtors who just cleared their liabilities with chapter 7 bankruptcy or chapter 13 bankruptcy. If you file for bankruptcy with qualified legal counsel, you will have more time and energy to devote to preparing to rebuild credit after discharge. We offer skilled representation with affordable rates and payment plan options designed to work with your budget. Schedule your free consultation with one of our experienced Arizona bankruptcy lawyers today at 480-833-8000 for more information.