If you are going through Chapter 7 bankruptcy, it is likely that getting new credit cards is the last thing on your mind. However, there are ways that you can leverage certain varieties of credit cards to help you on the path of rebuilding your credit in the aftermath of a bankruptcy.
When most people think of the term “credit card,” they are picturing an “unsecured” credit card. However, there are also “secured credit cards.” According to NerdWallet, secured credit cards can be a great tool to add to your credit-building arsenal.
What is a secured credit card?
A secured credit card is very similar to an unsecured credit card, with the exception that a secured credit card requires collateral. The collateral is what makes it “secure.” Essentially, you will put down a deposit on your credit card. The maximum of the credit card will then be equal to the deposit. So if you put down a $500 deposit on the credit card, your maximum is then $500.
How is this different from a Visa gift card?
A Visa gift card works similarly to a debit card. Once you have spent all the money on the card, the card is worthless. A secured credit card acts more like a regular credit card. You can spend up to $500 a month on the card and then pay it off. If you fail to pay off the credit card, the company takes your deposit.
The major difference is that gift cards do not report to the three major credit bureaus, whereas secured credit cards do. Maintaining a secured credit card responsibly can help you improve your credit in the aftermath of Chapter 7 bankruptcy.