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A credit card is one of the quickest and easiest ways to build credit — but if you have bad credit, most of the best credit cards are out of reach. That's when you turn to a credit card for bad credit. These cards are designed for one thing: establishing a positive credit history so you can improve your credit and qualify for better cards down the road.
But is there any value in getting more than one such card? There might be, but there are also some important considerations.
Why apply for a credit card for bad credit?
If your credit score is below 630, you may not be able to qualify for a regular credit card. A credit card for people with bad credit may be the best bet — and that will often mean a secured credit card. These cards require applicants to pay a refundable deposit, an extra guarantee that you’ll pay off your balance.
Using a secured credit card helps you demonstrate that you can be trusted to pay your bills on time. Regular, responsible use of the card will gradually raise your score so you’ll eventually be able to apply for other cards, even the best credit cards out there.
Why apply for more than one card?
You don't need more than one credit card to build credit. You don't get any kind of direct credit score benefit from having two or more cards as opposed to one. But there are indirect benefits that could be gained by having more than one bad credit credit card.
Credit cards for people with bad credit often have low limits, which can be challenging especially if you’re trying to increase your credit score. That’s because part of your score is determined by the percentage of your available credit that you’re using. For example, let’s say you only have one credit card, and it has a credit limit of $300. If you have a $150 balance on the card, you’re using 50% of your available credit — and that will hurt your score. Credit utilization should be below 30% if at all possible, which means charging no more than about $100 on a card with a $300 limit.
It gets even trickier than that. Because you don’t know when the three credit bureaus — Equifax, Experian and TransUnion — will look at your credit history, you can’t risk having your credit utilization ratio be above 30% at any point during the month. So even if you pay your entire balance off each month, you need to make sure not to charge more that 30% at a time or risk bringing your score down.
So additional cards may benefit you because they’ll increase your available credit and make it easier to make purchases without dinging your credit score.
» MORE: I have only one credit card — is that a problem?
What’s the catch?
Every time you apply for a new card, your score slips by a few points. That's not a big deal when you have great credit, but when your credit is bad, every point counts. Applying for multiple cards in a short period of time makes lenders nervous, so be careful. If you’ve recently applied for a credit card for bad credit, don’t apply for another one right away — and don’t apply for cards you don’t need.
Additionally, if you're building credit with secured cards, keep in mind that each card will require a security deposit, usually equal to the credit line. To open three secured cards with a $300 limit on each, you'll need $900 just for deposits.