Post-bankruptcy, you understand that there are some critical things you must do so that you may not fall into financial dire straits again. Among them include building an emergency cash fund, monitoring your credit report and paying your bills on time. Another crucial one: a secured credit card.
A secured credit card is an ideal credit-building tool for people who cannot obtain credit. Among the people who may benefit from a secured credit card are those who have no credit, workers with unstable jobs and people who have filed for bankruptcy. For the latter, re-establishing credit is critical. Generally, a person should apply for a secured credit card roughly six months after a discharge in bankruptcy.
Make timely payments to re-establish credit
Not everyone can obtain a secured credit card. For example, you need a certain minimum income, a job, no current credit problems and – as someone who filed for bankruptcy — a clean credit record for at least six months and even up to a year.
So, how does a secured credit card work?
- You make a cash deposit into an interest-earning savings account at a lender. This financial institution then gives you a card issued by one of the large credit card companies such as Visa, MasterCard, Capital One or Discover.
- The monetary deposit that you make into the account serves as the amount of your credit limit. For example, if you deposit $500, you can then charge $500 worth of merchandise. No more than that.
Make sure to use the card, somewhere between regularly and sparingly. You do not want to overdo it with excessive spending, The object of the secured credit card is to rebuild your credit. In doing so, you are displaying that you, once again, are creditworthy.
Also, make timely payments in full and regularly monitor your credit score. In time, as your credit score improves, you will become eligible for a regular credit card. This may take about a year but only if you abide by a regular payment schedule. Eventually – maybe three years down the road, you could qualify for certain types of loans.
Serves as a pivotal tool
A secured credit card represents another chance to establish credit and gain a firmer footing on the financial front. It can be a pivotal tool.