If you are in the process of recovering from bankruptcy, you may think that a credit card is the last thing you need or even out of reach entirely. However, this is not necessarily the case. In some instances, credit cards can be a very valuable tool for helping to rebuild your credit.
However, the credit cards that can help you are not the traditional variety. According to NerdWallet, secured credit cards require a cash deposit and can be key for credit building in the aftermath of bankruptcy.
What makes secured credit cards different?
When most people think of a “credit card,” they are actually thinking about unsecured credit cards. With an unsecured credit card, a lending institution gives you a certain maximum limit and allows you to borrow using the credit card up to that limit.
With a secured credit card, you must put down a cash deposit first. In turn, that deposit becomes your maximum limit. So if you put down $500 of collateral on a secured credit card, the most you can put on the credit card is $500. If you fail to make your credit card payments, the company will take your deposit.
How does this help?
Secured credit cards are not debit cards or gift cards; rather, the three major credit bureaus see them the same way as unsecured credit cards. Credit card companies report on secured credit cards the same way they do on unsecured credit cards. Responsible use of a secured credit card can help you rebuild your credit with little stress and overhead.