Tuesday, July 04, 2006

Getting a credit card after bankruptcy: Wells Fargo vs. CapitalOne

I filed for personal bankruptcy (Chapter 11) last August and my debts (except back taxes) were discharged at the end of November. I was anxious to start rebuilding my credit record, but wanted to let things settle a bit before trying to get a couple of credit cards. I had been deluged with offers of various kinds, most of which involved some sort of excessive "program" fees, but the CapitalOne offers didn't seem to have more than a simple annual fee. My plan was to wait six months and then start with a secured credit card, but then in late March I was informed that my software development contract would be coming to an end by mid-April and I was not very successful lining up replacement work, so the credit card plans fell by the wayside while I focused on lining up income.

I was able to score a full-time employment job offer with Microsoft at the end of April (to start in mid-May), but once again my thought was to let things settle and to make sure I had a solid source of income before playing around with credit.

It wasn't til mid-June after I had gotten my second paycheck (electronic of course) that I finally started talking to my bank, Wells Fargo, about getting a secured credit card. I checked the web site and it did state that you couldn't have a bankruptcy within the past 12 months, but the people at the bank told me that they usually look at the overall banking relationship (including the fact that a had direct deposit) before passing judgment. Alas, the credit people did not approve my application. Even with $300 sitting in a savings account ready to be switched to the security for the card, they still said "No." That seems rather silly to me, but sometimes bureaucrats can be rather narrow and close-minded, even when financially the deal was an absolute no-brainer (100% secured). Here's the kicker: I can get up to a $500 advance on my direct deposit paycheck. How can that make any sense when even a $300 secured credit card is declined?

Luckily, I had also applied to CapitalOne (online rather than one of the mailed offers since I had moved into temp housing and wasn't forwarding my mail yet) and they came through with a Platinum credit card with a decent $3,000 unsecured credit limit and only a $19 annual "membership" fee (they strangely claim that there is no "annual fee", but there is an annual "membership fee") and 14.8% interest rate. So, I'm all set, but still a bit annoyed with my bank. I probably could have gotten a better introductory rate from one of the mailed offers, but I didn't have one at my fingertips at the time. In a few months after I establish a little bit of a record and pay off my balance in full, I'll request a cheaper rate.

In another month or two I'll apply for another card, not because I need it financially, but to add a little beef to get my credit history looking more robust again.

My plan is to pay my balance in a pattern: payoff the first three months in full, pay minimum payment for three consecutive months, and repeat that pattern. And charge up to $250 to $750 per month. And overlap two cards so that I'll always have one card where my charges won't accrue interest, but my credit record will always show that I do have some outstanding balance and am in absolute 100% good standing with payments and limits. There may be some other pattern that is superior, but I think that's a good starting point. Pleas let me know if you think there is a better credit usage pattern. If I get a thrid card, I'd use it lightly and make odest payments every month and keep some balance every month.

-- Jack Krupansky


At 7:21 AM EDT , Anonymous CreditSmart said...

You can also start with secured credit cards. The fees for those cards are not high. That will improve your credit score.

At 12:50 PM EST , Blogger Matthew Davydov said...

Yep, secured credit cards could be a way to go.
This review lists some of the best cards in this category.


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