If you are thinking about starting a Chapter 7 bankruptcy, it is likely that credit cards are the last thing on your mind. However, once you get through the process, you are going to want to start to rebuild your credit. It might surprise you to learn that getting a credit card is a smart idea after a Chapter 7 bankruptcy.
What is important to keep in mind is the type of credit card. According to NerdWallet, secured credit cards are a good option for persons coming out of Chapter 7 bankruptcy who are no longer eligible for unsecured credit cards.
What is a secured credit card?
A secured credit card is different from an unsecured credit card because it requires collateral. Essentially, with a secured credit card you will put down a deposit. However much money you put down in the form of a deposit is now the maximum limit of the credit card.
In the event that you do not make your credit card payments, the company will take your collateral. The deposit acts as a surety to the credit card company.
How does this help my credit?
Just like unsecured credit cards report to the 3 credit bureaus, secured credit cards do two. A secured credit card is not a Visa gift card, where once you spend all the money on the card it is useless. Since a secured credit card acts as a credit card, you get all of the benefits with far lower risk as compared to unsecured credit cards. This is what makes them a good option for people coming out of Chapter 7 bankruptcy.
