When filing for bankruptcy, people sometimes lament their credit card debt. They may have found themselves in a difficult situation where they had to make extensive charges on that credit card, and it contributed to their overall debt. It’s part of the reason that they’re filing for bankruptcy in the first place.
However, after the bankruptcy, it’s time for them to work on rebuilding their credit score. This is when a credit card can actually be incredibly helpful and may be one of the most valuable tools a person can use.
A different type of card
After bankruptcy, though, people often use a secured credit card. This carries less financial risk for the lender. In order to get it, the individual has to provide a down payment. For instance, if they pay a $1,000 down payment, then the spending limit on the credit card is also $1,000.
The benefit here is that the individual can begin spending on that card and then paying off what is due at the end of the month. They can establish a track record of successful payments where they have addressed their debt properly and made all payments on time. This helps to demonstrate to other creditors that they are no longer a risk, and their credit score begins to climb again.
Eventually, the goal is to improve the credit score to the point that they can qualify for other types of credit, such as car loans or traditional credit cards. It takes time, but they can begin rebuilding their score—especially because the bankruptcy itself eliminated their overwhelming debt, and they are no longer missing payments and incurring interest.
Bankruptcy can be complex, as is the process of rebuilding credit afterward. If you’re going through this process, be sure you understand all the legal steps you’ll need to take.