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Using secured cards to rebuild your finances

Rebuilding credit after filing for personal bankruptcy can come with a lot of questions. Should you consider obtaining another credit card or loan? Or, should you wait until your credit is on more solid ground after spending time making rent and utility payments on time? Experts weigh in on the best way to re-establish credit after facing financial difficulties.

People who have just gone through bankruptcy are excellent candidates for secured credit cards. These cards require a deposit to activate, allowing the user to provide some sort of collateral in the event of default. Many companies offer secure credit cards specifically for people who are coming out of bankruptcy or other financial problems.

Secured cards require a deposit, often in the same amount as the limit of the credit card. For example, you may pay a $500 deposit for a $500 line of credit. Other plans are also available, depending on the lending institution.

Although it may seem counter-intuitive, you are actually a great candidate for new credit cards of this type. Lenders realize that you are unable to file for Chapter 7 bankruptcy again for at least eight years, and you do not have any existing debt. In other words, your slate is clean and you are able to take on a small amount of debt without much risk.

The final goal when considering your credit score after bankruptcy is to establish new credit with credit unions and banks, if possible. Even though you may be more likely to receive a line of credit from another type of financial institution, take any available opportunity to build credit with banks and larger entities.

If you pay all of your bills on time, your credit will start to improve in as little as six months when using a secured credit card. After about 24 months of good payment history, you are more likely to be a candidate for unsecured lines of credit.

Source: Fox Business, "How do I establish credit after bankruptcy discharge?" Justin Harelik, Dec. 18, 2012

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