How a secured credit card helps you re-establish credit

How a secured credit card helps you re-establish credit

On Behalf of | Nov 16, 2021 | Bankruptcy |

Emerging from bankruptcy, you understand that the first rule is abiding by smart spending habits. Next, you want to rebuild your credit. An important tool that will help you do this is a secured credit card – a financial tool usually reserved for people with no credit or who cannot get credit.

These credit cards work in the same way as regular credit cards. However, a significant twist exists. To get one, you need to open an interest-bearing account – perhaps a money market or savings account – with a financial institution that issues a secured credit card. In time, the card will help you re-establish your credit.

Use it regularly and make timely payments

Who benefits from having a secured credit card? It is the people who have no credit history, an unstable job or someone fresh from having filed for bankruptcy. A general rule of thumb is that one should seek a secured credit card about six months after the bankruptcy discharge.

Here is how a secured credit card works. The cash deposit you make into the bank account represents your credit limit. For example, if you deposit $300 into the account, you may charge up to that amount.

If you fail to make timely payments, though, the bank seizes the amount you owe from the account. However, since your goal is to rebuild your credit, you should regularly use the card and always pay on time.

By subscribing to this newfound behavior, you will be on your way toward becoming eligible for a regular credit card. This usually takes about a year as long as you stick to a good payment schedule. Gradually, other matters on the credit front will change, too. Perhaps in three years or more, you may qualify for certain loans.

A springboard to better things

A secured credit card serves as a springboard for people – including those who have recently filed for bankruptcy — to regain their financial footing. Getting back on track is what you want, and this credit card may help you accomplish this.