In the U.S., bankruptcy can be one of the only options for debt relief. In 2021, there were about 413,000 bankruptcy filings. If you are one of many who may need to file bankruptcy, you might worry about your future credit.
Bankruptcy does impact your credit score and makes it difficult to obtain a credit card later. However, you may be able to obtain a secured credit card to help build your credit.
What is a secured credit card?
A secured credit card is similar to a traditional credit card. The main difference is that you must put down a security deposit. The security deposit also serves as your credit limit. If you default on the card or if you cannot make payments, the lender will take money from your deposit. Financial institutions take less of a risk when they offer secured credit cards.
When you file for bankruptcy, it harms your credit score and many institutions will not offer a traditional credit card because of the risk.
How does a secured credit card impact your credit score?
Your secured credit card affects your credit score similarly to a traditional card. If you make your payments on time, it helps build your credit. When choosing a secured credit card, make sure that you choose one that reports your activity to at least one of the major credit credit bureaus. The lender must report to the credit bureaus to build your credit.
When you convert a secured credit into an unsecured credit card, it, you receive your deposit back.