After a bankruptcy filing, many people are reluctant to wade back into the world of credit, often because too much credit allowed them to build up the kind of debt that pushed them into filing for bankruptcy in the first place.

But, as many financial analysts note, rebuilding credit is an important part of recovering from personal bankruptcy. Here’s an outline of why and how to know if you’re ready to apply for a new credit card.

Credit after Bankruptcy?

Put simply, you need credit because in contemporary American life, your credit history plays a major role. Specifically:

• Housing: Many landlords check a person’s credit report before determining whether to rent to her. Theoretically, because a credit report includes a history of payment of various debts, it can give a landlord an idea of what kind of renter you’ll be (i.e. whether or not you’ll pay rent on time).
• Employment: It’s also common for employers to check the credit report of a potential employee. Some lawmakers are trying to see this practice changed, but for now you can expect a job application to include someone peeking at your credit report.
• Loans: This is perhaps the most important reason to reestablish credit. Whenever you apply for a loan (whether it’s a credit card, a mortgage or something between), the lender will check your credit. The terms of your loan will generally be based in large part on your credit score and the information in your credit report. Those with a strong history of paying loans on time are decent risks for lenders and so can be offered lower interest rates. And the reverse is also true.

But having no credit history at all means that potential landlords, employers or lenders would have no way to gauge what kind of risk you’d be to them, and so might deny you whatever it is you want.

When to Apply for a Credit Card

This depends largely on you and your financial habits. The BankRate.com article suggests considering these factors:

• How you’ll use it: The best way to use a credit card is to use it like cash. In other words, only buy with a card what you could afford with cash. That way, you can pay your bill in full at the end of each month. Cards grant you certain conveniences (like online shopping), not a license to spend.
• Why you filed for bankruptcy: If something unexpected like a divorce, death, illness or job loss led you to file, consider saving up about two months’ expenses before applying for a card. That way, if another emergency crops up, you won’t be tempted to run up a balance on your card.
• What card you’ll get: There are a lot of credit cards out there. Do plenty of research and find one that suits your needs. And if you can’t qualify for anything but cards with outlandish fees, wait a bit longer and try again.

Tags: after bankruptcy, credit after bankruptcy, credit cards