If you declare bankruptcy and go through the process of eliminating your debt, your credit score is going to go down. In fact, this is one of the reasons that some people avoid bankruptcy. They’re worried about ruining their credit score so that they can’t access loans and lines of credit in the future.
What’s important to remember is that you can rebuild your credit after filing for bankruptcy. So it’s not a matter of avoiding bankruptcy, but simply knowing what steps to take after the fact to build your credit score back up again. One way that you can repair your score is by using a secured credit card.
How is this different from a normal credit card?
The main difference with a secured credit card is that you have to use a down payment. For instance, you put $1,000 down, and then you can make charges on that credit card up to $1,000.
From the lender’s perspective, there’s relatively little risk. Even if you fail to pay in the future, they already have your down payment.
But if you use the credit card to make purchases and then pay them off on time, it still has a positive impact on your credit score. As such, responsible borrowing can repair your score over time, and you may eventually be able to access traditional credit cards, mortgage loans, car loans and things of this nature. The secured credit card gets rid of the risk for the lender, and you can then use that card to demonstrate that you are a responsible borrower.
Rebuilding your credit is one of the most important things you can do after filing for bankruptcy. Be sure you know what steps to take as you go through this legal process.