Rebuilding your credit is a difficult process and there are lenders out there who claim to want to help. But unless you look at the fine print, you could be jumping into another bad situation or making things even worse.
Recently one of my past bankruptcy clients visited me. He is in the process of rebuilding his credit and has been investigating credit cards and other options to help increase his credit score by using credit responsibly and re-establishing a track record of on-time payments.
He normally tosses all the pre-approved credit offers that come in the mail but this time he opened one of them; it was from RiseCredit.com. The letter said now that he is rebuilding his credit, they were able to offer him a personal loan of $3500. The application looked similar to pre-approved credit offers he’s received until he got to the fine print. In the smallest but legible print possible, the letter stated that the interest rate was 199%!
I went to the company’s website and discovered right on the first page a disclaimer which states, “This is an expensive form of credit.” I’m glad the web site is so upfront about the company’s business practices. But many people don’t read the fine print or check out a lender’s web site.
Don’t get pummeled by sky-high interest rates
To someone that has short-term financial problems or has been denied other types of credit, the offer of a pre-approved loan might seem like a lifeline. But at a ridiculous interest rate of 200% to 300% or more with bi-weekly (every two weeks) payments of over $300, it’s very easy to fall behind and do even more damage to one’s credit.
I also found it interesting that Rise Credit uses images from the movie Rocky to market their loans. I guess they want you to think you’ll feel like a champ when they wire a few thousand dollars to your checking account. But remember that Rocky Balboa didn’t win a bout until the sequel. If you do business with a lender like this, you’re more likely to end up bruised and battered, rather than come out on top.
Rebuilding your credit the right way
There are several lenders who offer credit cards and lines of credit to borrowers with less-than-prime credit scores that can be used to help rebuild credit after a bankruptcy. Of course, someone with a credit score in the range of 550 to 650 – which is typical in the first 1 to 3 years after bankruptcy – won’t be eligible for the lowest interest rates. But they certainly don’t need to pay as much as the 363.97% maximum interest rate that Rise Credit assesses.
The moral of this story is, it’s important to research and find credit terms that are reasonable, and not just blindly accept pre-approved credit offers that show up in the mail from would-be predatory lenders. It is possible to obtain an unsecured credit card with interest rate under 25% within a year or two of finalizing your bankruptcy case. The further you get from bankruptcy and the longer your post-bankruptcy on-time payment record, the better the interest rate will be.
Opening a secured credit card immediately after your bankruptcy can help you get started on the right foot towards obtaining unsecured credit within just a few years. A great resource for researching credit cards and other financial products for rebuilding credit is the MyFico Forum.
My client decided that putting this application and all others like it through the shredder is the best course of action as he has no interest in being a repeat bankruptcy client of mine or anyone else’s in the future. That’s a great example to follow.