If you’ve filed for bankruptcy, it’s not a good idea to try and borrow during this time. But if you did want to apply for a credit card, would you be eligible?
Well, being declared bankrupt has a major effect on you credit history – which means it will have a major effect on a lender’s decision too.
Let’s take a look at the restrictions you’ll face when bankrupt.
Do I need to tell the lender?
During your bankruptcy, if you do apply for credit, you must disclose your status to the lender if you plan to borrow more than £500. This applies to all types of credit, whether that’s a credit card, loan or overdraft.
Because the lender knows you’re bankrupt, they know that you’re on a very tight budget. From this, they’re likely to conclude that you can’t afford to make any more repayments.
Plus, a bankruptcy order also tells lenders that you’ve struggled with borrowing in the past, which could make them more cautious about lending to you. The fact that you’ve struggled with your previous credit agreements will act as a warning sign when lenders assess the risk you present.
All of this means that if you’re bankrupt and trying to borrow any more than £500, it’s unlikely you’ll be accepted. For this reason, it’s best not to apply for the time being, as a rejected application could harm your credit history further still.
I plan to borrow under £500.
If you’re planning to apply for less than £500, you’re not obliged to tell the lender that you’re bankrupt. But if you’re asked, you should certainly not lie – and it’s a good idea to make them aware either way. Lenders will find out when they check your credit history anyway, which they will do when you apply to borrow.
Should I apply?
The conditions of a bankruptcy mean that every spare penny of your cash each month should go towards paying back the debt you owe to your existing lenders. These payments will be based on your current income and outgoings and will take into account all your essential spending, like your mortgage/rent, utility bills and grocery shopping.
Borrowing more would mean that your budget would need to stretch to include the new repayments too. For this reason, it’s not a good idea to borrow more.
I’m no longer bankrupt; will this change things?
Typically, a bankruptcy order lasts 12 months. Although you’re free to borrow once you’re discharged, you may find it difficult to do so. This is because your credit history will still be affected – the fact you were declared bankrupt will stay on there for six years or more.
While there’s nothing you can do to reduce this time, you can improve your credit history once you get your discharge notice – for example, you could follow these simple tips.
Before you apply for credit, work out what the repayments are likely to be and whether you can afford them. This could help you avoid the same difficulties that led to your bankruptcy.
Borrowing a small amount – a credit card with a low limit, for example – can help you to gradually improve your credit history. By keeping up with your repayments each month, you’ll show lenders that you’re a responsible borrower. If you keep this up, over time you should open yourself up to more lenders and better deals.
There are credit card providers that specialise in lending to people with a history of bad credit - Ocean being one of them.
With Ocean, you have the ability to check whether you’ll be accepted for our credit card before you apply. And this soft search tool - QuickCheck - won’t affect your credit history. Find out more here.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.