Editorial Policy

Bankruptcy hampers credit card plans

Erica Sandberg

May 23, 2014

QHi Erica,

I have no credit cards because of my bankruptcy. I filed in 2013 because I was drowning in debt. Now, I need a washer/dryer. It is $1,500 plus tax at Best Buy. The credit card has no interest for 18 months. Is this a good deal? I have no other way because I do not have $1,500 to spend. I have three boys under 5. I'm trying to build my credit, too. Thanks for your time. –Marci

ADear Marci,

Now that the bankruptcy is but a memory, you're ready to jump back into the credit pool? Not a bad idea, but you'll need to dog paddle in the shallow end for a while first.

With a Best Buy card that offers zero interest financing for 18 months, you can leave the store with the items you want but the assurance of no extra charges being applied — as long as you pay in full before the clock chimes. If you fail to satisfy the balance in full within 18 months, or if you pay late at any time during the contractual period (which will result in a fee of up to $35), you will immediately have to pay all of the back interest that has been accumulating all along, but wasn't added to the bill. The APR for this is steep, ranging from just over 25 percent to nearly 28 percent.Ask Erica

Also, check your credit score before applying. They won't accept just anybody.

I assume that your bankruptcy was of the Chapter 7 variety, as it's the most common. Since you filed about a year ago, your credit rating is still impacted. The better deals are usually available to those with a clean bill of credit health. For this reason alone, I doubt that you would qualify.

The issuer will also check your income level to make sure you can easily handle the payments. That you don't have $1,500 to spend is a concern. Sure, many people would have a hard time plonking down that much money at once, but that doesn't mean that borrowing it is the right answer. You should never rely on a credit card to obtain the things you need but can't afford. Financing a home with a long-term mortgage is fine, and a car that you pay over a few years is OK, but just about everything else ought to be paid completely within a few months.

If you're still interested in the card and Best Buy does accept your application, I want you to do two things:

1. Make sure you send your payment in well before the due date so you don't get fined and the APR doesn't escalate.

2. Pay more than you have to each month. If the sales tax is 6 percent, you'll be looking at $1,590. Break the final cost up into six installments of $265 per month. This way, your credit rating will get a jolt and you'll be assured that no finance charges will be assessed.

And if they turn you down? Open a special account just for this appliance, save and then pay with cash (using a debit card sporting either the Visa or MasterCard logo, as it offers consumer protection when shopping). Get a credit card too, but one that's either secured or specifically for people who are trying to recover from a bankruptcy. The limit will probably be small, which is fine, because you'll be using it for little expenses that you pay off every month.

After two years have come between you and the bankruptcy, and you have used one credit card well, you should feel like a strong credit swimmer. You can keep your head way above the water by keeping zero balances.

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