If you are going through or thinking about filing for either Chapter 7 or Chapter 11 bankruptcy, it is likely that credit card debt is part of the problem. However, soon you will need to start working on rebuilding your credit. It might surprise you to learn that this process can involve credit cards.
However, the kind of credit card that can help you after a bankruptcy is not the same kind of credit card that may be responsible for your debt. According to NerdWallet, secured credit cards operate similarly to unsecured credit cards, but they involve collateral.
How are secured and unsecured credit cards different?
If you sign up for a secured credit card, you will need to put down a deposit on the card. Once you do this, that amount of money then becomes the maximum limit for the credit card. So, if you put down a $500 deposit on your secured credit card, the maximum limit of that card is $500.
In comparison, unsecured credit cards do not require any sort of collateral. It can be very difficult to get an unsecured credit card after bankruptcy when your credit score is poor, but it is not difficult to get a secured credit card. This is because if you do not pay your credit card bill, the company will simply take the collateral payment.
How can a secured credit card help me rebuild my credit?
Even though secured credit cards have a collateral requirement, they are still credit cards: the company reports to the credit bureaus. If you use your secured credit card successfully, this will improve your credit. Secured credit cards can be a cornerstone of rebuilding your financial Life after bankruptcy.