Declaring bankruptcy can devastate your credit, and it will be important to rebuild your credit rating once you’ve completed the bankruptcy process. One of the most frequently-recommended methods of reestablishing credit is the secured credit card.
Secured credit cards work much like “regular,” unsecured credit cards; however, there are some key differences.
To open a secured credit account, you will need to open a separate savings account with the bank or lending institution. You will be required to pay up to 200% of the credit limit in the form of a deposit. For example, if you apply for a card with a $100 limit, you may be asked to make a $200 deposit. However, banks usually pay interest on this deposit.
In addition, the bank may charge application and processing fees. Such fees often add up, and can cost hundreds of dollars, in addition to the deposit. It is possible to be denied a secured credit card, and the application and processing fees may not be refunded in the event of a denial.
You should also remember that the interest rate and annual fees on a secured credit card are most likely to be higher than those of an unsecured card.
It is crucial that the bank report to the major national credit reporting agencies: Experian, TransUnion, and Equifax. These agencies track your credit score; your credit score can be improved only if the bank reports your payment history to them.
When searching for a secured credit card, then, there are a few basic questions to ask:
1. How high is the deposit?
2. How much will it cost to apply for a card?
3. If your application for a secured credit card is approved, what are the annual fees and interest rates?
4. Does the bank report your credit activity to Experian, TransUnion, and Equifax?
The FTC warns consumers to remain vigilant in order to avoid secured credit card marketing scams. Such scams often require consumers to call a 900 number, luring them in with the promise of guaranteed credit.
1. You are charged for calls to 900 numbers. These charges can exceed $50 in some cases.
2.No legitimate lending institution will guarantee you credit or issue a card without first examining your credit history.
3. “Credit repair” services cannot do anything that you cannot do yourself by contacting credit agencies directly. They cannot improve your credit for you—only your own good credit habits can reestablish your credit rating.
Finally, a bankruptcy attorney may be able to help you determine the best way to reestablish your credit after a bankruptcy.