If you file for bankruptcy, it may mean that you can no longer apply for traditional credit cards. Lenders are going to be too concerned that you won’t be able to pay off the debt. This can cause your credit score to fall, and you won’t be approved for new cards.
However, you still may be able to get a secured credit card. In many ways, this can work just like a traditional card. So how is it different and how can it help you if you have declared bankruptcy?
It starts with a down payment
The main difference is that you need to make a down payment in order to get a secured credit card. With traditional cards, you simply accumulate debt until the end of the month, when you are expected to pay it off. You do the same thing with a secured card, but it is always backed up by a down payment that could theoretically pay off the entire balance. You can only put as many charges on the card as you initially surrendered for the down payment.
You begin rebuilding your credit score
The financial benefit of doing this is that you begin to build your credit score back up. These payments count as proof that you can, in fact, afford to take on some debt and pay it off at the end of the month. There’s no risk to the credit card company, because they already have the down payment if necessary, but it shows them that your financial situation really has changed and that you got a fresh start.
This can help you get other loans
The end goal of a secured credit card is to cancel it. You can build your credit score back up to the point that you can get other loans, such as traditional credit cards, or even car loans and home mortgage loans. The secured card is simply one tool you can use to make this possible. But it’s important to know how to use it so that you can immediately begin building your credit report back up after declaring bankruptcy to get the fresh start that you needed.
As you work your way through this process, carefully consider all of the necessary legal steps.