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How a secured credit card can help after bankruptcy

On Behalf of | Dec 30, 2021 | Chapter 7 Bankruptcy

If you file for bankruptcy, you may find it difficult to get a traditional credit card right after that filing. You will likely be able to do so in the future, once you build your credit score back up, but lenders will be a bit wary if you have just filed.

Don’t worry, though; there are options. One is to use a secured credit card instead of the more common unsecured cards. A secured credit card allows you to rebuild that score and open up more borrowing possibilities.

Putting down a deposit on your new card

A secured credit card works by asking you for a deposit at the beginning. When you put money down, you then have a credit limit that is equal to that deposit. For instance, You may deposit $1,000, and then you can borrow up to $1,000 on your card. You still have to make monthly payments just like you would with any other card, and it may come with fees.

The benefit for the credit card companies is that they already have one thousand dollars. If you charged purchases on your card and then failed to pay them off, they could just take your deposit in that would cover the cost. There’s no risk to them, so they’ll let you do this even if you don’t have a good credit history or a good rating at the time.

The benefit for you is that you can build your score back up so that you can get a normal credit card in the future. It’s important to understand exactly how bankruptcy works, how it impacts your score and what you can do afterward to get things back to normal.