One of the best things a person can do to rebuild their credit score after filing for bankruptcy protection is to open a credit account and use it wisely. However, those who have had financial problems in the past are often offered subprime credit cards, which can lead to even more debt.
Subprime credit cards are offered to people with credit scores of less than 600. They come with higher interest rates, because the consumers they target are more likely to default, as well as expensive fees.
According to a new study from NerdWallet, subprime credit cards have cardholder agreements that are much longer than standard credit cards, and they are written at a college level even though most of the consumers who are offered the cards do not have a college education.
NerdWallet’s study said that subprime credit card companies are targeting people with lower educations and trying to get them to agree to complicated terms that they can’t understand. They are especially targeting people who have filed for bankruptcy and those who have recently been released from prison.
“These lenders are predatory, and there’s a clear better option,” a credit card expert with NerdWallet told CBS News.
What is the better option for people trying to improve their credit?
A much smarter way to start to rebuild your credit after bankruptcy is by getting a low-limit, secured credit card. Then, you should never exceed your credit limit and make all of your payments on time. Doing this consistently over time can help you build good credit, even after bankruptcy.
Secured credit cards do not carry the same fees as subprime credit cards, but they do often require a minimum deposit of $200 or $300. NerdWallet pointed out that even with the security payment, people with secured credit cards end up paying hundreds of dollars less in fees over the years than they would with a subprime credit card.
Credit counseling can also provide you with the help you need to improve your spending habits and stay on the right track. Keep reading for more information on how bankruptcy affects your credit and what you can do to repair it.