Filing bankruptcy can help individuals find the debt relief they need and obtain a new financial start in their life. However, many people worry how bankruptcy will affect their credit score—and therefore, many future financial opportunities.
While it is true that bankruptcy can have a significant impact on someone’s credit, there are ways that individuals can take action to build up their credit once again. One of the most common ways to do this is by obtaining a secured credit card. But many New Mexicans might wonder: what does that entail?
What is a secured credit card?
A secured credit card specifically helps individuals with no credit or those who have negative information in their credit history. In addition to that, there are two things that anyone considering a secured credit card should know:
- They help build credit history: Companies who issue the secured credit card can share the individual’s credit and payment information with larger credit bureaus. This allows individuals to rebuild their credit safely.
- There is cash behind every payment: A secured credit card is a real credit card—not a debit card. However, it works similarly to a debit card. The card is “secured” because individuals must deposit money, so every payment on the card uses real cash. This helps individuals avoid accruing debt or overcharging on credit.
When you should consider getting a secured credit card
Nowadays, the world relies heavily on the use of credit cards. A credit score is an important factor in obtaining a mortgage, and credit cards are one of the most common payment options in retail stores.
Filing bankruptcy can impact someone’s ability to get approved for a new credit card. So, individuals should consider using a secured credit card after bankruptcy if they:
- Cannot get approval: A secured credit card helps individuals build up their credit, which can help them obtain a traditional credit card in the future. They can cancel the secured card, get their deposited money back and open an unsecured card. Sometimes, the issuer of the secured card might also transfer individuals to an unsecured card if they make their payments on time.
- Receive approval: Even if banks or credit bureaus approve someone’s application for a traditional credit card, it might still be a good idea to consider a secured credit card. Building up credit is never negative.
Of course, the decision to use a secured credit card will not be right for everyone. Individuals should weigh their options carefully and evaluate their circumstances and needs before applying for a secured credit card after bankruptcy.