How do secured credit cards work?
The New York Times recently wrote about the value of secured credit cards for those with poor credit. A secured credit card requires a cash deposit to “secure” the line of credit and allows users to make purchases up to that amount. These cards can be a valuable asset to those who are seeking a fresh start after a bankruptcy.
Below are some frequently asked questions regarding secured credit cards, excerpted from the article:
Can anyone get a secured credit card?
Secured cards are generally easy to obtain, as long as applicants have the required deposit. However, many banks won’t issue the cards to people who have a recent bankruptcy on their credit report.
What happens if I miss payments on a secured card?
If you fail to pay, the bank can draw on your security deposit instead. Missed payments are reported to credit bureaus, and are reflected in your credit score. Closing a secured credit card account because of default typically drops credit scores by 60 points, the Philadelphia Fed found.
Are there other types of loans that can help build credit?
Yes. Some credit unions offer “borrow and save” loans, in which borrowers agree to deposit part of a loan in a savings account, which they can unlock once they’ve repaid the loan. Online start-ups like Credit Strong and Self Lender offer similar digital versions.
If you would like to learn more about how bankruptcy might affect your credit score or about the use of a secured credit card following a bankruptcy, please contact our office at (516) 432-1622.