Receiving Credit Card Offers After Bankruptcy

Chicagoans constantly receive credit card offers in the mail, many of which tell us that we have been pre-selected or pre-approved for credit cards. Even after filing for consumer bankruptcy, Illinois residents may receive these offers. But should you apply for them? Or can you risk doing damage to your credit profile as you are attempting to rebuild your credit after bankruptcy?
How Do Credit Card Companies Determine Offers of Credit?
According to a recent article from Bloomberg Business, there is actually a method behind the credit card mailings most of us receive. A Federal Reserve working paper analyzed the “business of credit-card solicitation,” tracing the ways in which these communications have been steady or have shifted in the years during and after the financial crisis. Who tends to receive these offers? It depends, in large part, on the types of offers and the individual’s credit history.
Lenders tend to target borrowers by looking at a number of different factors, including:
  • Credit score;
  • Time that has elapsed since you filed for personal bankruptcy;
  • Education level; and
  • Household income.
The working paper emphasizes that credit card companies are prohibited from using certain socioeconomic data when deciding who to solicit with offers, including “race, gender, and age.” However, some analysts suspect that these factors “are still making it into the credit-decision mix.”
In other words, many factors go into a credit card company’s formula for sending out credit offers, and some of those reasons may be better than others.
Applying for Credit Cards After Consumer Bankruptcy
Importantly, some offers—just like the reasons for credit card mailings—are better than others. If you have filed for bankruptcy recently and receive a credit card offer in the mail, it may be that a lender is soliciting you for a credit card that has less favorable terms. For instance, you could end up applying for and being approved for a credit card that has a very high interest rate, which could end up getting you into an unmanageable debt situation.
As the authors of the working paper explain, when it comes to using credit scores to determine the type of credit offers that get sent out, “the average difference in interest rates between the minimum and maximum credit offer . . . is 310 base points.” Additionally, persons who have a history of personal bankruptcy are more likely to receive credit offers that carry high annual fees and do not offer rewards.
In short, the working paper makes clear that it is extremely important to read the terms of the offers you receive and to consider whether they are right for you. According to an article in Business Insider, some credit card companies have options designed especially for consumers who have filed for bankruptcy. Those cards often have spending limits that increase gradually, provided that the debtor makes payments.
Personal bankruptcy can be extremely complicated, and it is important to discuss your situation with an experienced Chicago bankruptcy lawyer before your file. If you have already filed for Chapter 7 or Chapter 13 bankruptcy, and you have either had your debts discharged or are currently making payments through a repayment plan, we can also help you to think about ways of rebuilding your financial profile. Contact the Emerson Law Firm today.
See Related Blog Posts:
Personal Bankruptcy and Divorce

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