Credit scores take a hit after filing for bankruptcy. Most often, you cannot apply for a traditional, unsecured credit card shortly after the bankruptcy proceedings. Not only does your bankruptcy remain on your credit score, but the low score affects the lender’s decisions.
Before you try to obtain an unsecured card, you may want to consider a secured card. According to U.S. News, a secured card is a card that requires a deposit.
How to use a secured card
When a lender approves you for a secured card, you receive a card that looks similar to an unsecured credit card. You cannot distinguish between a secured and unsecured card based on appearance. However, when you apply for a secured card, you need a deposit. The security deposit remains with the financial institution. You can borrow up to the amount of your deposit and if you default on your payments, the lender uses your deposit to pay your bill.
How a secured card builds your credit
Secured credit cards build your credit because the lender still reports your payment history to the three credit bureaus. You have to pay your card on the due date and if you keep your balance low and make payments on time, you begin to build your credit back up.
In addition to building credit, a secured credit card can help you acclimate to using credit cards responsibly. With a secured credit card, you minimize the risk of going into debt.
Most secured credit cards allow you to transition to a traditional card later. Using a secured card helps you rebuild what you lose after bankruptcy.
