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Secured vs. Unsecured Credit Cards: Building Credit After Bankruptcy

Post by Christopher Migliaccio

Most Americans are no strangers to holding at least a small amount of credit card debt. In fact, TransUnion, one of the largest credit bureaus in the United States, reported that the average debt per borrower in the beginning of 2013 hovered at $4,878, a significant sum for many.

For those who have been bankrupt and who are still trying to improve their FICO scores, a high line of credit could be either a blessing or a curse. For anyone looking to gain the trust of financial institutions across the country, deciding between secured and unsecured credit cards is often the first step.

Secured vs. Unsecured Credit Cards 

An unsecured credit card is one with which most Americans are familiar: It is a card that offers you access to a specific amount of money with the understanding that you will repay a portion of borrowed money monthly. This is generally only available to those with a strong history of repaying what they borrow.

For those who have a low credit score, whether because of debt delinquency or bankruptcy, a secured credit card might be the only option. A secured card, per its name, is a card that is directly tied to a portion of money that you deposit with your financial institution.

For example, if you apply for a secured credit card that extends a credit line of $500, you may be required to leave that amount with the bank upon applying for the card; in the event that you cannot repay, the bank simply will use your deposit to cover your debt.

Other cards let users deposit smaller amounts to achieve greater credit lines, and the specifics of each card will vary, depending on the issuer. It is also important to note that secured credit cards also come with annual fees.

Why You Should Apply for a Secured Credit Card 

Most financial advisors, when addressing the secured vs. unsecured credit card debate with a bankrupted client, recommend the secured line of credit. The secured credit card may seem similar to a debit card on the surface. For both, you are required to have a certain amount deposited into your account in order to make purchases.

There are a few important distinctions between the two, however. First, there are certain transactions, as well as certain organizations, that will only allow credit cards to be used, not debit cards.

Debit cards may be connected directly to your checking account, but they don’t build your credit score. With a secured credit card, although you may have only a small line of credit, each on-time payment you make helps build your credit, eventually allowing you to obtain a card with no strings attached.

Help Build Your Credit After Bankruptcy 

If you have gone through the process of declaring bankruptcy, then you understand how difficult it can be to qualify for a line of credit in order to get back on your feet. If you are struggling with your financial history and wondering about the benefits of secured vs. unsecured credit cards, consider applying for a secured credit card. Some people who have declared bankruptcy even request help from their bankruptcy attorneys to learn about their options regarding debt relief.

The attorneys at Warren & Migliaccio can help you examine your options and answer any questions you may have about secured and unsecured credit cards, building your credit score and getting back on track to financial stability. In fact, we have a free eBook available via our contact page, What You Need to Know About Bankruptcy.

Article Category: Bankruptcy

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Recent Posts

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