How Secured Credit Cards Can Help You Rebuild Your Credit After a Bankruptcy

Bankruptcy is an important tool that has helped many people get out of debt and get a fresh start. But it can take some time for your credit to recover, so it’s important to remember that it’s not the end of your financial story. Obtaining a secured credit card is one effective tool to rebuild your credit after bankruptcy.

Understanding Secured Credit Cards

Secured credit cards are a special type of credit card that require a cash deposit as collateral. The deposit is typically equal to the card’s credit limit.

This deposit acts as security for the card issuer. That makes it easier for individuals with damaged credit or a recent bankruptcy to qualify, and it allows you to use credit a bit more safely.

Here’s how secured credit cards can play a crucial role in your post-bankruptcy financial recovery:

1. Access to Safer Credit Rebuilding:

After bankruptcy, your credit score may have taken a significant hit. This might make it challenging to qualify for traditional unsecured credit cards. Secured credit cards offer an opportunity to access credit when other options may be limited.

That said, sometimes right after your case is dismissed, you might get an influx of credit card offers. I’ve had clients receive multiple offers in the mail encouraging them to get unsecured credit cards immediately after bankruptcy. These offers typically come with extremely high fees and penalties, along with extremely high interest rates because of your credit history.

So it’s not impossible that you could qualify for a new credit card, but it isn’t the safest way to move forward.

2. Building a Positive Credit History:

Responsible use of a secured credit card can help you build a positive credit history from the ground up.

Two of the key factors that credit bureaus will look at are timely payments and maintaining a low credit usage rate. Secured credit cards can help with both of these things.

First, you’ll want to set a low credit limit for yourself, which should be easy because you’ll have to pay a deposit to cover your credit limit.

Then you’ll only want to use the card for small purchases that are within your budget. And you’ll pay them off every single month.

3. Gradual Credit Score Improvement:

As you consistently make on-time payments and manage your secured credit card wisely, you’ll begin to see gradual improvements in your credit score.

These improvements open doors to better financing terms, lower interest rates, and improved financial opportunities.

Credit score and bankruptcy memphis4. Potential for an Upgrade:

Some secured credit card issuers offer the opportunity to transition to an unsecured credit card. They usually reach out after you’ve demonstrated responsible credit management over a certain period.

This transition can improve your credit profile and provide access to a broader range of financial products. But I strongly advise clients to avoid unsecured credit as much as possible, especially as you’re still getting used to budgeting and rebuilding your credit score.

Before taking on unsecured credit, you want to be very confident that you have the discipline to use it without going into debt.

5. Security and Peace of Mind:

With a secured credit card, you have the security of knowing you won’t accumulate unmanageable debt, since your credit limit is typically tied to your deposit.

This peace of mind can help you rebuild your credit without the risk of falling into excessive debt or repeating past mistakes.

A Memphis Attorney to Help You Rebuild Your Credit After Bankruptcy

There are a lot of other tricks to rebuilding your credit after bankruptcy, including:

But it can also make a huge difference to have an attorney who cares about your credit health.

For over 30 years, our Memphis attorneys have helped people get out of debt and rebuild their lives after bankruptcy. That includes rebuilding their credit scores back to an A rating. We take it very seriously, because we want your financial success.

To get started with a free consultation, contact us online today or call us at 901-327-2100.