Submitted by Rachel R on Wed, 08/01/2018 - 9:45am
Secured cards help credit after bankruptcy
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Wilmington bankruptcy is the launchpad to a fresh financial start without debt weighing you down and causing stress. Remember that bankruptcy isn’t an end but a beginning. What you do after you get your bankruptcy discharge determines your long-term outcome. One thing to consider immediately is your credit score. Look at how bankruptcy affects your credit score and how secured credit cards help you rebuild.
Yes, your credit score took a hit when you filed bankruptcy, but it was probably nothing compared to the damage done by over limits, late payments, and delinquencies that were dragging down your score every month. In fact, research from the Federal Reserve showed that consumers that choose bankruptcy rebound their credit score faster than those that muddle on without the intervention.
Bankruptcy stops the credit score freefall. Then it’s up to you to take steps to rebuild your credit score. You must commit to working on your credit score systematically. It’s a myth that bankruptcy ruins your credit for years. It’s the years of unaffordable debt that wrecked your credit. Bankruptcy stops that and gives you the chance to reset and take control of your finances.
There are two types of credit cards – secured and unsecured. With an unsecured card, the card issuer is taking a risk on you. Nothing is “securing” the debt. You can run up the card balance, flake out, not pay, and the issuer is out of pocket unless they can collect from you. A secured card is different because the issuer isn’t taking a risk because you must deposit funds to secure the account.
The deposit is the same amount as your credit line on a secured card. You can never charge more than the deposit, so the card issuer is never at risk. You deposit an amount that determines the card limit. If you deposit $500, that’s the most you can “charge.” If you don’t pay the bill, the deposit is taken to cover the debt, and your card account will be closed.
You can usually get a secured card within four to 12 months after your Wilmington bankruptcy discharge. Secured cards report to the credit bureaus just like unsecured cards do, and this is critical. The credit score calculation's five factors include:
After bankruptcy, the lender or creditor will close your credit cards and most other credit accounts. That means you must start over to beef up these factors and get your score back to good. Credit cards are one of the most useful tools to rapidly re-establish your credit score because they touch on all these factors. You should use your secured card modestly, don’t run up the balance, and pay the bill on time and in full every month.
Before you apply for any type of new credit after your Wilmington bankruptcy discharge, it pays to do your homework. You should never apply for credit that you won’t get. But how can you know? There are many websites and forums devoted to tracking the credit expectations for various credit cards, loans, and other financial products.
You’ll need to research and find out which secured card issuers work with bankruptcy filers, how long they want you to wait after discharge before applying, what fees they charge, and what the minimum and maximum deposits are for their secured credit card products. Start by applying for one for which you’re certain you meet the qualifications, then go from there.
Some cards charge issuance fees that will max out the card from the moment it arrives in your mailbox. Avoid those products even if it means you must wait a few more months to qualify for something better. Once you have the secured card, use it wisely. Set up a small recurring bill like Netflix and pay it off in full each month.
After that card boosts your score, you can start researching which unsecured cards will accept post-bankruptcy discharge consumers and see the minimum credit score required for acceptance. As soon as you can, adding an unsecured card to the mix will further boost your credit. Use each card wisely by charging minimums and paying off on-time consistently.
To get started on your new path to financial freedom free from overwhelming debt, contact the Law Offices of John T. Orcutt. Read reviews from our clients, then call +1-919-646-2654 to set a free Wilmington bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.
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