Many individuals who file Modesto bankruptcy are often caught by surprise with a flood of credit card offers shortly after they file. Creditors know that once you file bankruptcy, you cannot file again for a period of time, making it more likely that you will be “on the hook” for your debt. This is a double-edged sword of opportunity and risk. Establishing healthy credit habits will be the key to rebuilding your credit. One way of rebuilding credit, with lesser risk is to choose a secured credit card, rather than an unsecured card.
What is a Secured Credit Card?
Secured credit cards have limits that are backed by an initial deposit. For example, if you place a $200.00 deposit on a secured credit card, you are extended a credit limit of $200.00. The $200.00 is placed in a secure account that provides the issuer reassurance that, should you default on your credit card’s payments, they will still be paid. Some issuers place the deposit in an interest-bearing account that can earn you a few dollars if you are eligible for a refund on the deposit. There are some credit card companies that will extend your credit limit beyond the initial deposit dependent upon your creditworthiness at the time of your application. In addition, many secured credit cards offer a clear path to help you rebuild your credit, increase your credit limit over time, and eventually transition to an unsecured credit card, once you have demonstrated your ability to pay consistently on time.
How Does a Secured Card Affect My Credit?
Despite the card being backed by a deposit of your own money, the deposit is being held in an account belonging to the issuer. You are not using the $200 you deposited like you would with a pre-paid credit card. The issuer is reporting to your credit on a regular basis. If you are using less than 30% of your open lines of credit, and you are making your payments on time, you can see an improvement in your credit score relatively quickly. Conversely, if you max out your credit limit, or slip into the bad habit of defaulting or making delayed payments, it will also report to your credit.
Pros and Cons
|· Likelihood of approval is high
· Reports to credit bureaus
· Can help re-establish credit
· If you default, your security deposit is used and you won’t be sent to collections unless you have a higher balance than your deposit.
|· You have to pay the deposit. (Most cards start at $200)
· Additional fees can include application fee, processing fee or annual fees – Shop around
· Interest rates are higher – Make sure you pay in full monthly
· Can negatively impact credit if not handled properly
Is a Secured Credit Card Worth It?
Despite the drawbacks, a secured credit card can go a long way in helping you build a good credit score. When you can’t get a traditional credit card, a secured credit card is the best choice for improving your credit and qualifying for a better credit card.
Categorized in: Credit