Most Americans are aware that one of the quickest ways to build credit is with a credit card. However, if you have recently filed bankruptcy you may think that a credit card is the exact last thing you need.
The reality is that certain varieties of credit cards can be very good for people who are recovering from bankruptcy. According to NerdWallet, the user backs a secured credit card with a cash deposit, which is what makes secured credit cards available to persons with low or no credit.
How does a secured credit card work?
When you get a secured credit card, the cash deposit you put down on that credit card then becomes your maximum spending limit. So if you put down a $500 cash deposit on the card, your maximum limit is then $500.
The idea is that you use the secured credit card to help you build credit. So you use the credit card and minimally each month and pay it off. In turn, the credit card company reports your good behavior to the credit bureaus, raising your credit.
How is this different from a Visa gift card?
A Visa gift card acts like a debit card. That is, somebody puts money on the card and another person spends the money until it is gone. A secured credit card works more like a traditional credit card where you have a balance that you pay off each month like a revolving door.
Additionally, gift cards do not report to the credit bureaus while secured credit cards do. This is why secured credit cards can be a very powerful tool in your quest to rebuild your credit after filing bankruptcy.