Secured credit cards are a viable option for those who have recently filed for bankruptcy. Getting a credit card after bankruptcy can help a person rebuild and reestablish credit after wiping out past debts. It is important to understand the function of a secured credit card, as well as the advantages and potential risks of using such a card.
What is a secured credit card?
A secured credit card requires a security deposit to establish a line of credit. This deposit is refundable assuming the user adheres to payment terms and conditions. Other fees and interest rates may apply.
A creditor may require a deposit of anywhere from several hundred several thousand dollars. Many banks and credit card companies offer secured credit cards as a product to those looking to reestablish credit.
How a Secured Credit Card Impacts Credit Score
Secured credit cards, just as “regular” unsecured credit cards, are reported to credit bureaus. This gives the user an opportunity to rebuild and restore credit. Ideally, a consumer should choose a company that reports payment history to the three major credit bureaus on a monthly basis.
The most effective way to impact one’s credit score is to always make your monthly payments. If possible, pay more than the minimum payment. This demonstrates fiscal responsibility to the credit bureaus. On the other hand, a missed payment can damage a credit score, just as it would with an unsecured credit card. It also is advisable to keep a low monthly balance. This keeps any interest rates in check and makes it easier to adhere to a monthly payment schedule.
Choosing a Secured Credit Card after Bankruptcy
A person who has recently filed bankruptcy will have special financial concerns and considerations. As such, it is important to first establish a budget before applying for a secured credit card. Opt for a secured credit card that is affordable and realistic given available financial resources.
This may mean starting out with a low credit line and slowly building over time. Eventually, it may mean getting an unsecured credit card once you reestablish your credit score. Always examine your budget when deciding whether to increase your credit line or get a new credit card.
Special Considerations of a Secured Credit Card
Not all secured credit cards are created alike. Financial experts urge those who are coming out of bankruptcy to exercise caution when getting credit card. While many offer feasible options for rebuilding credit, others may contribute to financial instability due to high monthly fees and other hidden costs.
Working with a financial expert may be helpful in avoiding some of the missteps commonly associated with getting a credit card after bankruptcy and establishing post-bankruptcy credit.
If you have questions about how to file for bankruptcy in Texas, contact a Dallas area bankruptcy attorney at Warren & Migliaccio. We can talk to you about your options and answer your questions about chapter 7 or chapter 13 bankruptcy. Call us at 888-584-9614 or complete this online consultation form.