Using secured credit cards to rebuild credit

The ways that a bankruptcy affects your credit score can be complicated, but a short-term drop is common when filing for chapter 7 bankruptcy. A secured credit card can be used to reestablish a good credit history, once the burden of overwhelming debt is lifted through bankuptcy protection.

Instead of relying on your past credit history, the issuer of a secured credit card requires that you pay a deposit. Your credit limit is tied to the size of that deposit, which can eliminate the risk for the lender. Your payment history is reported to the credit bureaus, allowing you to take advantage of the second chance you get through bankruptcy by paying on time.

There are other ways to easily borrow money during or after bankruptcy, such as through buy-now-pay-later programs. Payments made through a BNPL plan will soon be reported to credit bureaus, but secured credit cards have been a tool for rebuilding credit for many years.

For advice on how to approach the question of bankruptcy, contact us for a free consultation.