3 Things To Know About Secured Credit Cards After Bankruptcy
No one ever intends to land in a financial position where bankruptcy is the only way out, yet many people find themselves at the offices of bankruptcy attorneys signing the documents to file. If you were in this position and ended up filing for bankruptcy, you should begin looking for ways to rebuild your credit. Even though a Chapter 7 bankruptcy will stay on your credit report for 10 years, you should not wait this long to achieve good credit. Getting a secured credit card is one of the best ways to rebuild credit after bankruptcy, and here are three things you should know about this.
What Is a Secured Credit Card?
Chances are, if you filed for bankruptcy, you are familiar with credit cards. A secured credit card is just like a normal credit card, except that it has one requirement. To get a secured credit card, you must deposit money in an account with the bank that issues you the card. The money you deposit is protection for the bank. The bank is able to take this money if you fail to make your payments.
The money you deposit will have to stay in the account until you pay the balance in full and close the credit card, or until your credit reaches a certain number. The bank that issues the card may tell you that they will drop the deposit requirement if:
- You make all your payments on time for a certain amount of time
- Your credit score goes up enough
These are normal requirements with secured credit cards and there are hundreds of banks that offer these.
What Should You Look For With a Secured Credit Card?
There are a number of things you should consider as you begin searching for a secured credit card, including:
- Amount of the annual fee – Almost all banks charge annual fees for secured credit cards. Some banks may charge $29 a year for a card, while others may charge more.
- Interest rate – You can expect to pay a higher rate on a secured card because the bank still has risks to worry about, but you can compare several different banks to find out what the best rates are. According to Bankrate, the average rate on a secured credit card is between 15% to 23%.
- Minimum deposit – The other thing to look into is how much money the deposit must be in order to get the card. As you look for this information, you should also find out how much your credit line will be. A lot of banks will offer credit lines equal to the deposits. In other words, if you open a secured credit card account by depositing $300 in the account, your credit limit will also be $300.
You should realize that a bank still has the right to decline your application, even if you deposit money. Because of this, you may need to apply with several banks before you find one that will approve your application.
The final thing to look for with a secured credit card is how the bank reports information to credit bureaus. This is the most important factor if you are trying to rebuild your credit after bankruptcy.
How Is Reporting Handled?
The purpose of getting a secured credit card is to rebuild your credit, but this will only be helpful if the bank reports regularly to the three major credit bureaus in this country. My FICO reports that 35% of your credit score is made up of payment history. Using a secured credit card is a great way to begin building a payment history.
If you choose a card from a bank that reports to the credit bureaus monthly, and if you make all your payments on time, you will slowly begin building a positive payment history. This will cause your credit score to slowly increase. While most banks report monthly, there are some that do not.
Filing for bankruptcy is a big event that can cause bad credit, but there are steps you can take to help your credit rating improve faster. You can apply for a secured credit to help with this, and you can also talk to your bankruptcy attorney to learn about other steps you can take.
If you think you may need to file for bankruptcy, don't be afraid to contact a lawyer such as one at http://wfactorlaw.com for more info.