Whether you're looking to sign a rental agreement on a new apartment or you need to access credit for a large purchase in the near future, a low credit score can slow the process down. But there are ways to rebuild your credit score faster, and a secured credit card, or multiple secure cards for that matter, might help.
However, there are also important considerations to take into account when applying for credit cards, especially multiple cards. While the average American carries around 3.9 credit cards, how many you need to boost your credit score faster will depend on several factors.
Benefits of having multiple secured credit cards
There are several ways multiple secured credit cards can help build your credit score faster.
Diversification of credit profiles
Diversification of credit is also referred to as your credit mix. Lenders look at this mix to determine whether you're disciplined across several credit types. This is also a consideration when calculating your credit score. By having more than one secured credit card, you increase your credit diversity, which gives lenders a better picture of how you manage your debt.
Increased available credit limit
Secured credit card limits are often lower than other cards, with many maxing out at around $5,000 or less. So, if your credit needs are higher than this, you would need to have multiple credit cards to access higher total credit limits.
Remember, with good use, such as paying monthly payments on time and keeping credit utilization rates low, cardholders can often convert their secured credit cards to regular credit cards after a period of time, which can offer even more options for credit increases.
Lower credit utilization rate
Not only does your credit utilization rate account for a large percentage of your credit score, it also shows lenders that you're using your available credit wisely. The higher your credit limits, the easier it is to stay within a low credit usage range.
According to Chase Bank, the ideal credit utilization rate is 30%. This means that if you have a credit limit of $2,000, you should ideally only use up to $600 of your limit throughout the month. However, if you need access to the full $2,000, it's better to split the funds over a few credit cards with a combined credit limit of around $6,800 so you don't use more than 30% of your limit on any single card.
Ease of application
Applying for secured credit cards is fairly simple, and many lenders allow you to check whether you qualify before applying. This means you'll know whether it's worth pursuing a formal application that requires a hard credit check that could affect your credit score. Keep in mind, that if your credit score is on the low side, some secured credit cards may not even require you to have a minimum credit score at all to apply.
Does having multiple secured credit cards help build credit?
Yes, having multiple secured credit cards can help build credit. This is because you're able to split your credit over multiple cards, reducing the chances of maxing out your credit. Lenders will also be able to see how you manage your debt over several products.
However, it's also important to keep in mind that multiple credit cards means being responsible for managing more financial products, which means you need to stay on top of minimum balances due, repayment dates, credit limits, and charges associated with these cards. You may also experience a slight dip in your credit score initially since your score drops slightly with each new credit card application.
The additional deposits required for each secured credit card might also leave you in a cash flow predicament, especially if you're applying for the cards because you need access to funds.
Considerations before getting multiple secured credit cards
If your goal is to improve your credit score faster, it's important to consider the actions you can take to help get you there.
Ability to manage multiple accounts responsibly
If you're managing multiple secured credit card accounts, it's extra important to keep track of your credit card usage, payments, limits, and transactions to ensure you're using your credit cards wisely and not hurting your credit score. Online budgeting tools and budgeting apps that allow you to upload credit card information across various institutions can help you keep a bird's eye view of your finances. Some of these tools include:
- You Need a Budget or YNAB: Link multiple accounts to a single app and automate your finances.
- Goodbudget: A budget planning tool that enables you to plan your expenses and track your payments.
- EveryDollar: Simplify your payments and link your bank accounts to have a clear picture of your financial position.
- Quicken Simplifi: Budget and track payments easily while having access to tailored budgeting plans that adapt to your evolving financial situation.
- Monarch Money: Considered the ideal replacement budgeting app for Mint, thanks to its comprehensive coverage of your financial products.
Impact on credit inquiries and new credit lines
Every time you get approved for a secured credit card, your credit score takes a temporary hit. This is because lenders do a final hard pull or hard credit check on final approval. Your credit score can drop by as much as five points during this period and can take anywhere from a few months to two years to recover.
If you're applying for multiple secured cards within a short period, these hard pulls can add up and reflect poorly on your report, affecting your overall credit score.
Evaluating annual fees and interest rates
It's important to compare credit cards to ensure you're getting the best deal. Some secured cards don’t have an annual fees but may have higher interest rates, while others may charge annual fees but offer lower annual percentage rates (APR). For example, you might find cards with no annual fee but APRs around 20%, while fee-based cards might offer APRs closer to 15%.
If you apply for multiple secured credit cards and each of them carries an annual fee, these can quickly add up to hundreds of dollars per year. To help, it's a good idea to make sure you're signing up for secured credit cards that offer an overall good deal for your situation, where the fees and interest rates are reasonable and the product meets your credit needs.
Considering additional deposits
Your credit limit on a secured credit card is tied to the security deposit you're able to put down, up to the lender's maximum limit allowed. For instance, if the lender has a maximum limit of $5,000 on a secured credit card and you want to take advantage of that full limit, you need to put down a security deposit of $5,000 for that card. So it's important to keep in mind that if you're applying for multiple secured credit cards, you'll need to have security deposits available for each one of them.
Monitoring credit report for accuracy
Whether you have a single credit card or multiple credit cards, monitoring your credit score is important. Every month, lenders send credit information to the main credit bureaus to report on your credit profiles.
Having multiple secured credit cards means checking multiple products to ensure the information on your credit profiles is correct. Things that you want to keep an eye on include:
- That the correct credit limits are reported since these can affect your credit utilization rate
- Whether your payments are shown as occurring on time, and, if not, have your bills automated to pay well before the due date as late payments can have a severe effect on your score
- Whether your actual credit products match those listed on the bureaus
- How many credit inquires were actually performed, especially if some of your credit products promised "no credit check"
While there are many credit reporting companies out there, the three major ones to check include:
If you notice any errors, reach out to the credit bureaus in writing. Each bureau has a process listed on their site and, in some cases, require you to complete a dispute form. You may also be able to track the progress of your disputes online.
Make the most of multiple secured credit cards
Having multiple secured credit cards can make a substantial difference to your credit mix as you now have more credit lines to prove your ability to manage credit. With the careful use of your cards, proper monitoring, and good management, you could see a lift in your credit score fairly quickly. Consider your options when looking for multiple secured cards to find the right mix of benefits and costs for you.
