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What is a secured credit card?

On Behalf of | Dec 19, 2022 | blog, Chapter 13, Chapter 7

Filing for bankruptcy can be a great relief. However, even if the financial pressure is off, there is still the future to contend with. Most persons that file bankruptcy have an interest in improving their credit scores as soon as possible.

While it will take several years for bankruptcy to disappear from your credit record, there are several things you can do in the meantime. One of the more popular routes of rebuilding credit after bankruptcy is a secured credit card.

What makes a secured credit card different?

When most people picture a “credit card,” what they are actually thinking about is an “unsecured” credit card. That is, you have a card with a limit and you can charge the card to that particular limit, and you pay it at least monthly.

Secured credit cards work in a very similar fashion, but you must put down a payment as collateral on the maximum. So, for example, if you put down $500 on a secured credit card, your maximum is 500.

What makes them effective?

Secured credit cards are still credit cards, and thus the 3 major credit bureaus monitor them. They are not like loadable debits. Responsible use of a secured credit card can help you to raise your credit ranking. Plus, they are often easier to obtain for persons with poor credit as compared to unsecured credit cards. If you are successful with a secured credit card, you can often “upgrade” it to an unsecured card at some point.

Many Americans find that secured credit cards become a cornerstone on their path to financial wellness.