Applying for a credit card is an important decision. Each new application reduces your credit score slightly, and too much available credit increases the risk that your spending will get out of control and you’ll rack up more debt.
In spite of all that, there are good reasons to apply for bad credit credit cards. In some cases, there are even good reasons to apply for more than one.
Let’s look at the factors that should guide your decision.
Why apply for a credit card for people with poor 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 would I want to apply for more than one 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 using only $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 larger purchases and pay them off right away without dinging your credit score.
What’s the catch?
Every time you apply for a new card, your score slips by five points. Applying for a lot of 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. More credit is not necessarily a good thing, partly because frequent credit card applications hurt your score and partly because it makes it too easy to overspend.
The bottom line
Don’t apply for more credit cards than you need and focus on using your cards in a way that builds your score. Credit cards are valuable financial tools, but only if you’re careful.
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