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What is a secured credit card?

On Behalf of | Jun 25, 2020 | Bankruptcy |

Filing bankruptcy may be one of the biggest decisions that you ever make, but it is a solid first step toward a healthy financial future. Once you have gone through the bankruptcy process, it is time to start planning that future.

For many people, secured credit cards are the first step toward rebuilding a healthy credit score. According to Nerdwallet, a secured credit card is different from an unsecured credit card because it requires a deposit.

What is a secured credit card?

When most people think of a “credit card,” they are thinking of an unsecured credit card. An unsecured credit card is when a bank gives you a credit card with a limit. You may spend up to that limit with no collateral.

On the other hand, a secured credit card requires collateral. For example, if you put down $500 on a secured credit card, your credit card maximum is then $500. In the event that you do not pay your credit card, the issuer will draw from the collateral to cover your debt.

How do secured credit cards help?

It can be very difficult for individuals who have declared bankruptcy to get unsecured credit cards. A secured credit card will allow you to maintain a credit card in a responsible way. In turn, the issuer will report to the three major credit bureaus. Good conduct with a secured credit card can pave the way toward a healthy financial future with a good credit score.

Also, secured credit cards have generally favorable interest rates. Many unsecured credit cards available to people who have poor credit have very bad interest rates. Secured credit cards are a safe and effective way to help you rebuild your credit after declaring bankruptcy.