credit card debt lawyer

How secured credit cards can help you build your credit

| March 10, 2020

In the personal finance world, the words “credit card” often carry a negative connotation. Indeed, credit card debt is one of the top-cited reasons why people file for bankruptcy. Still, credit cards can actually be a part of a responsible credit-building strategy after someone has filed for bankruptcy.

When someone files for bankruptcy, their credit score will take a hit. Although the decrease in a person’s credit score is not as significant as many people believe, obtaining a traditional unsecured credit card immediately after filing for bankruptcy may be difficult. Instead, those who recently filed for bankruptcy may need to apply for and obtain a secured credit card.

Secured credit cards look and work just like unsecured cards. They are accepted at the same places, and still require cardholders to make monthly payments. Secured cards also accrue interest. However, unlike unsecured cards, the issuing institution requires a secured cardholder make an initial deposit which is usually equal to the card’s credit limit. The initial deposit will not be used by the issuing institution to make payments, but will be used only as a last resort if the cardholder cannot pay the card down. Another difference between secured and unsecured credit cards is that many secured credit cards require an annual fee, while there are many options for unsecured cards that do not require an annual fee.

It is often asked, if someone can afford to make an initial deposit and make monthly payments, why would they need a secured credit card that has an annual fee. First, it is worth noting that unsecured cards are marketed toward and designed for people with low or no credit and are hoping to rebuild their credit. Thus, unlike a debit card or pre-paid card, a secured card allows the issuing institution to share a cardholder’s purchase and payment history with the three main credit bureaus. Because of this, if a cardholder’s account is kept in good standing they will build credit as they use the secured credit card.

If you are considering filing for bankruptcy, contact the knowledgeable attorneys at the Georgia bankruptcy law firm, Morgan & Morgan, P.C. To learn more, call 706-510-3920 to schedule a free consultation today.

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