Many people use credit cards for most of their purchases, especially with how common it has become to buy things online. A credit card simply makes it easy.
One of the downsides to declaring bankruptcy, then, is that it reduces a person’s credit score. This may mean that they do not qualify for the credit cards that they want. At this time, they may want to consider a secured credit card. How is this different?
Making a down payment
A secured credit card eliminates the risk for the lender. In order to get the card in the first place, the borrower provides a down payment, such as $1,000. They can then use their card just like they would with a traditional card, but they have a maximum spending limit of $1,000.
Ideally, the person will then make their monthly payments on time. If they don’t, the credit card company already has the down payment. But if they do, then it can improve their credit score over time.
The benefit here is that it gives the person who declared bankruptcy a chance to rebuild their credit score. Once it rises far enough, they may be able to take out car loans, mortgage loans or other types of credit cards. All of these transactions can continue to raise their score through responsible spending. In this sense, a secured credit card is just the first step toward repairing that credit score and working toward a positive financial future.
Understanding the bankruptcy process
Are you considering bankruptcy to eliminate overwhelming levels of debt? It’s very important to understand how the process works and all the legal steps you’ll need to take.
