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What is a secured credit card?

On Behalf of | Dec 19, 2022 | Bankruptcy

When people go through bankruptcy, they sometimes have the opinion that credit cards are responsible for that bankruptcy and therefore should be avoided. They may have had to cancel all their credit cards during the case, and they swear that they’ll never get them again.

However, there is one type of credit card that is actually very beneficial to get after you declare bankruptcy: a secured credit card. What is this, what makes it different and how can it help you in this situation?

A card backed by a down payment

Secured credit cards require down payments when you first apply for them, and then this payment determines how much you can charge on the card. For example, you give the company $1,000, they give you a card, and then you can charge up to $1,000 of purchases. You still have to pay them off by the end of the month, but, if you don’t, the company knows that they have the down payment already.

The benefit for you here is simply that you start building your credit score back up. Certainly, you could buy the items that you wanted with cash, but using the cash to back the card allows you to make monthly payments and increase your credit score. After you’ve done this for some time, it will open up more opportunities for you to get other lines of credit and take other steps to build your score even higher. These cards are very useful for credit rebuilding.

This is just one thing that you want to keep in mind as you look into your legal options and go through the bankruptcy process.