Did you know that a study found that credit cards were used to make 28% of all payments? Building credit is an essential financial milestone that opens doors to various opportunities, from securing loans and mortgages to obtaining favorable interest rates on credit cards. One effective strategy for establishing or repairing credit is through the use of secured credit cards. While a single secured credit card can surely assist, many people question if having two secured credit cards speeds up the process of developing credit.
But before we get into the topic, it is recommended to first read about the Secured Credit Cards for building credit in detail by Bright Money!
This in-depth article will look at the benefits and issues of using two secured credit cards to establish credit more quickly.
Can 2 Secured Credit Cards actually help Build Credit faster?
Yes, Two secured credit cards can help build credit faster by diversifying your credit profile and increasing your available credit. Use them responsibly, make on-time payments, and keep your credit utilization low to demonstrate responsible credit management, which will positively impact your credit score over time.
1. Increased Available Credit Limit
How It Works: Each secured credit card you open typically requires a security deposit, which then determines your initial credit limit. By having two secured cards, you effectively double your available credit compared to having just one.
Benefits: A higher available credit limit can positively impact your credit utilization ratio. Credit utilization is a significant factor in your credit score and measures the percentage of your available credit that you're using. Lower credit utilization is generally favorable, and having two cards can help keep your utilization rate low if you maintain low balances.
2. Diversification of Credit Types
How It Works: Credit scoring models take into account the diversity of your credit accounts. This includes both revolving credit (credit cards) and installment credit (loans like mortgages or car loans). Having two secured credit cards adds to the variety of credit types in your profile.
Benefits: A diverse credit mix can positively influence your credit score. It demonstrates your ability to manage different types of credit responsibly. While secured cards are a form of revolving credit, having two of them can still contribute to the diversity factor, especially if you don't have other forms of credit.
3. Building Multiple Positive Payment Histories
How It Works: Every time you make an on-time payment on a secured credit card, it adds a positive payment history to your credit report. Having two secured cards means you have two opportunities each month to establish a strong payment history.
Benefits: A consistent track record of on-time payments is a crucial factor in building credit. With two cards, you can demonstrate responsible credit management more frequently, which can help establish a positive credit history faster.
4. Mitigating the Impact of a Missed Payment
How It Works: While it's essential to make all payments on time, having a second secured card can act as a safeguard. If you happen to miss a payment on one card, you still have another card with a positive payment history.
Benefits: While missing a payment can have a negative impact, having a second card with a clean payment history can mitigate the damage and allow you to continue building credit positively.
5. Potential for Credit Limit Increases
How It Works: Some secured card issuers offer opportunities for credit limit increases based on your responsible use of the card. This can happen over time with consistent on-time payments and responsible credit management.
Benefits: If both of your secured cards offer the potential for credit limit increases, having two cards increases your chances of receiving those increases. A higher credit limit can further lower your credit utilization ratio and positively impact your credit score.
6. Establishing a Longer Credit History
How It Works: The length of your credit history is another significant factor in your credit score. Your credit age is determined by the age of your oldest account and the average age of all your accounts.
Benefits: By opening two secured cards, you're adding to your credit history. Over time, this can positively affect your credit age, especially if you maintain these accounts for an extended period.
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What are the Other Options to Build Credit?
Building credit is essential for achieving financial goals and accessing favorable lending terms. Besides using credit cards, here are several other options, including Bright's credit builder loan:
1. Credit Builder Loans
How They Work: Credit builder loans are designed to assist individuals in establishing or improving their credit scores. Unlike traditional loans, where you receive the borrowed funds upfront, credit builder loans work differently. You make fixed monthly payments into a dedicated savings account over the loan term. After successfully completing the term, you receive the funds.
Here are some of its benefits:
- Structured Credit Building: Credit builder loans provide a structured and disciplined approach to building credit. By making on-time payments, you establish a positive payment history, which is reported to the credit bureaus
- Savings Component: In addition to building credit, you're also saving money during the loan term. This can serve as an added financial benefit, helping you establish an emergency fund or reach savings goals while improving your credit
2. Secured Loans
How They Work: Secured loans require collateral, similar to secured credit cards. You provide an asset, such as a car or a savings account, as security for the loan. If you fail to repay, the lender can claim the collateral.
Here are some of its benefits::
- Improved Accessibility: Secured loans are often more accessible to individuals with limited or poor credit histories. Since the lender has collateral to mitigate risk, they may be willing to extend credit when traditional unsecured loans are not an option
- Credit Score Enhancement: Responsible management of secured loans, including making timely payments, can positively impact your credit score over time. This can be especially beneficial if you're looking to rebuild or establish credit
3. Authorized User on Someone Else's Credit Card:
How It Works: Being added as an authorized user on someone else's credit card allows you to benefit from their positive payment history. You'll receive a card linked to their account but are not responsible for making payments. Their payment history on that card is reported on your credit report.
Here are some of its benefits::
- Credit Score Boost: If the primary cardholder has a good credit history, being an authorized user can potentially boost your own credit score. This is a passive way to benefit from someone else's responsible credit management
4. Retail Store Credit Cards
How They Work: Many retail stores offer their own branded credit cards that are often easier to qualify for compared to traditional credit cards. These cards are typically used for making purchases exclusively at that specific store
Here are some of its benefits:
- Credit Building Opportunity: Responsible use of retail store credit cards can help establish or improve credit. They may approve applicants with limited or fair credit histories
- Store Discounts and Rewards: Some retail store cards offer discounts, rewards, or exclusive promotions for cardholders, which can provide additional value for frequent shoppers
5. Credit-Builder Secured Savings Accounts
How They Work: Certain banks offer secured savings accounts where you deposit a specific amount of money, and the bank extends a line of credit equal to that deposit. As you make regular payments on this credit line, your payment history is reported to credit bureaus.
Here are some of its benefits:
- Qualification: These accounts are typically easier to qualify for compared to traditional credit cards or loans, making them accessible to individuals with limited credit history
- Simultaneous Saving: While building credit, you're also building savings. This dual benefit helps you establish financial security alongside improving your creditworthiness
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6. Peer-to-Peer (P2P) Lending
How It Works: P2P lending platforms act as intermediaries that connect borrowers seeking loans with individual investors willing to fund those loans. Borrowers create loan listings, and investors choose which loans to fund. These loans often have terms and interest rates determined by market demand and individual agreements.
Here are some of its benefits:
- Accessibility: P2P lending can be more accessible for borrowers who may not meet traditional lending criteria. The platforms often consider a broader range of factors beyond just credit scores
- Potential for Lower Interest Rates: Depending on your creditworthiness and the demand from investors, P2P loans may offer competitive interest rates compared to some traditional lenders
7. Rent Reporting Services
How They Work: Rent reporting services partner with landlords and property management companies to report your monthly rent payments to one or more credit bureaus. This information is then included in your credit report.
Here are some of its benefits:
- Positive Payment History: Timely rent payments, when reported, can add a positive payment history to your credit report. This can help improve your credit score over time by showcasing your responsible payment behavior
8. Credit-Builder Apps
How They Work: Some mobile apps are designed to assist individuals in building credit. These apps may offer various features, such as reporting rent payments to credit bureaus, providing credit education, or offering small, low-interest loans designed for credit building.
Here are some of its benefits:
- Convenience: Credit-builder apps leverage technology to provide convenient options for individuals looking to establish or improve their credit. You can manage your credit-building efforts directly from your smartphone
- Diverse Features: These apps often offer a range of credit-building tools, making it easier to tailor your strategy to your specific needs and financial situation
9. Student Loans
How They Work: Student loans are primarily intended to finance educational expenses, including tuition, books, and living costs. While their primary purpose is educational, responsible repayment of student loans can also help build credit.
Here are some of its benefits:
Establishing Credit: Student loans provide an opportunity for individuals, often young adults, to begin building their credit histories. Making on-time payments contributes positively to your credit profile
Credit Mix: Student loans are considered installment loans, and having a mix of credit types (revolving and installment) can be beneficial for your credit score
10. Micro Loans and Community Development Financial Institutions (CDFIs):
How They Work: CDFIs are financial institutions that focus on providing affordable financial services to underserved communities. Some CDFIs offer Micro Loans, which are small loans designed to help individuals build credit.
Here are some of its benefits:
- Accessible Credit: CDFIs aim to provide credit options to individuals who may not have access to traditional banking services or face barriers to credit approval. Micro Loans, in particular, are designed to be accessible
- Community Support: By utilizing CDFIs and their credit-building offerings, you support community development and financial inclusion, helping underserved populations access affordable financial services
Benefits of Having Two Secured Credit Cards
Enhanced Credit Score Diversity
Credit scoring models consider the diversity of your credit accounts when calculating your credit score. Lenders want to see that if you can responsibly manage various types of credit. With two secured credit cards, you're not only demonstrating your ability to handle credit cards but also diversifying your credit portfolio.
Boosted Credit Limit and Lower Credit Utilization
Your credit card balances to credit limits are compared to determine your credit usage. Better for your credit score is a lower credit use rate. You may easily enhance the amount of credit you have accessible by having two secured credit cards with different credit limits.
Accelerated Credit Building Opportunities
Building credit is often a slow and gradual process, but having two secured credit cards can accelerate your progress. Each secured credit card reports your payment history to the major credit bureaus. This means that with two cards, you have twice the opportunity each month to demonstrate your responsible credit use by making timely payments and keeping your balances low.
Financial Security Through Redundancy
Financial emergencies can happen to anyone. Whether it's a lost wallet, a sudden medical expense, or an unexpected car repair, having a backup secured credit card can provide a financial safety net. In such situations, you won't be left without access to funds, and you can rely on the second card to cover essential expenses until you resolve the issue with the first card.
Enhanced Financial Discipline
Managing two secured credit cards requires a higher level of financial discipline. Juggling multiple accounts means you must keep track of due dates, credit limits, and balances for each card. This increased responsibility encourages better money management skills.
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Considerations Before Applying for Two Secured Credit Cards
Certainly, let's delve deeper into the considerations you should take into account before applying for two secured credit cards:
1. Initial Deposits
Secured credit cards require an initial deposit as collateral, and this deposit determines your credit limit. If you plan to open two secured credit cards simultaneously, you'll need to have sufficient funds to cover both deposits. It's crucial to assess your financial situation carefully before proceeding. Consider whether allocating funds for both deposits will strain your finances or if you have a comfortable buffer to meet your everyday expenses, savings goals, and any unexpected emergencies.
Keep in mind that the deposit for each card can range from $200 to $500 or more, so the total amount required can be substantial. Ensure that your budget allows for these deposits without compromising your financial stability.
2. Annual Fees and Interest Rates
The national average APR for secured credit cards is 20.68%. Secured credit cards come with varying annual fees and interest rates. These costs can significantly impact the overall expense of using these cards. Before applying for multiple secured cards, research and compare the terms and conditions of different issuers to find cards that align with your budget and financial goals.
Look for cards with reasonable annual fees or, if possible, no annual fees at all. Also, pay attention to the interest rates (APR) associated with these cards. A lower APR can save you money from interest charges if you carry a balance, although it's advisable to pay your balance in full each month to avoid interest altogether.
Choosing secured cards with favorable terms ensures that you're not burdened with unnecessary expenses while building your credit.
3. Payment Responsibilities
With two secured credit cards, you'll face the responsibility of managing twice as many monthly payments. Missing payments or late payments can result in late fees and, more importantly, negative impacts on your credit score. To effectively manage this increased responsibility:
- Set up reminders or automatic payments for each card to ensure you never miss a due date
- Create a budget that accounts for your credit card payments, so you have a clear understanding of your financial obligations
- Keep a record of your payment due dates and consider syncing them with your paydays to ensure you have funds available
- Responsible payment management is crucial for maintaining and boosting your credit score
4. Responsible Use
The advantages of having two secured credit cards are contingent on appropriate use. To get the most out of these cards, avoid exceeding your credit limitations. Even if you make on-time payments, having a high credit card amount compared to your credit limits might have a negative influence on your credit score. Maintain a modest balance, ideally less than 30% of your credit limit.
Also, make sure you routinely make on-time payments on both cards. Payment history affects your credit score significantly, and a history of late payments can be negative.
Practicing responsible credit card usage includes avoiding impulse spending, only using the cards for necessary purchases, and paying attention to your overall financial health.
5. Monitoring Credit:
Regularly monitoring your credit reports and scores is essential as you navigate the process of building credit. Monitoring provides several benefits:
- Error Identification: Regular checks help you identify and resolve any errors or inaccuracies on your credit reports. Correcting these errors promptly can prevent them from negatively impacting your credit score
- Progress Tracking: Monitoring allows you to track your progress of building credit. You can see how your actions are boosting your credit score over time, which can be motivating and reassuring
- Alerts for Identity Theft: Monitoring can also serve as an early warning system for potential identity theft or fraudulent activities on your credit accounts. If you notice unfamiliar accounts or unauthorized transactions, you can take immediate action in order to address the issue
To monitor your credit, you can request free annual credit reports from each of the major credit bureaus—Experian, Equifax, and TransUnion. Additionally, many online tools and services provide ongoing access to your credit scores and reports.
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Tips for Managing Multiple Secured Credit Cards
1. Set Up Payment Reminders
Missing a payment due date can have significant consequences for your credit score, as payment history is a crucial factor in your credit report. To ensure you make timely payments on your two secured credit cards, consider the following:
- Digital Reminders: Set up email or text notifications from your card issuers to remind you of upcoming due dates. Most card issuers offer this service to help you stay on top of payments
- Automated Payments: Try to make your credit card payments as automatic as you can. To have payments debited automatically on the due date, link your bank account to your credit card account. This method almost assures that you will not miss a payment
You may maintain a consistent payment history and prevent late penalties and negative points on your credit report by using these reminders and automation solutions.
2. Maintain Low Balances
Maintaining low credit card balances is critical for controlling your credit utilization ratio, which is the amount of credit you're using in comparison to the total amount of credit available. A lower credit use ratio boosts your credit score. Here's how to keep your accounts in order:
- Avoid Maxing Out: Aim to use no more than 30% of your available credit limit on each secured card. For example, if you have a $500 credit limit on each card, try to keep your balance below $150 on each card
- Pay Multiple Times a Month: Consider making payments multiple times a month, especially if your spending tends to be higher. This can help keep your balances low and reduce the impacts on your credit utilization ratio
By following these practices, you'll demonstrate responsible credit use and boost your credit score.
3. Review Statements
Regularly reviewing your credit card statements is essential for several reasons:
- Detect Unauthorized Charges: Check your statements for any unauthorized or suspicious transactions. If you spot any, contact your card issuer immediately to report and dispute them
- Verify Charges: Ensure that all listed charges are legitimate and match your purchase history. This helps prevent billing errors and ensures you're aware of all your card activity
- Track Expenses: Reviewing your statements can also help you keep a record of your spending habits and identify areas where you can cut back or adjust your budget
By being diligent about reviewing your statements, you can maintain control over your finances and address any issues promptly.
4. Avoid Opening More Accounts
While having two secured credit cards can be beneficial for building credit, it's important not to overextend yourself by opening too many credit accounts at once. Here's why:
- Credit Inquiries: Each credit card application typically results in a hard inquiry on your credit report, which can temporarily lower your credit score. Multiple inquiries within a short time period can have a more significant impact
- Responsibility: Managing multiple credit accounts requires discipline and responsibility. Opening too many at once can be overwhelming and increase the risk of missed payments or overspending
Instead of opening more secured credit cards, focus on effectively managing the two you have. As your credit improves, you can consider upgrading to unsecured credit cards with higher limits and more benefits.
5. Upgrade to Unsecured Cards
The ultimate goal of using secured credit cards is to establish or rebuild your credit to the point where you qualify for unsecured credit cards. Unsecured cards typically offer higher credit limits and better rewards. Here's how to work toward that goal:
- Build Positive Credit History: Maintain a positive payment history and responsible credit use with your secured cards. Aim for at least six months to a year of on-time payments and low credit card balances
- Monitor Your Credit: Check your credit reports often and scores to track your progress. When you notice improvements, consider applying for unsecured credit cards that align with your needs and financial goals
- Apply Strategically: Choose unsecured credit cards that match your credit profile and lifestyle. Some unsecured cards may have minimum credit score requirements, so apply for those that you're more likely to be approved for
By upgrading to unsecured cards, you'll unlock greater credit-building potential and access to more favorable credit terms.
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Conclusion
Building credit is a gradual process that requires patience and responsible financial behavior. While having two secured credit cards can accelerate your journey of building credit, it's essential to approach this strategy with careful planning and discipline. By diversifying your credit profile, increasing your available credit, and demonstrating responsible credit use, you can boost your credit score and open doors to better financial opportunities. Remember that building credit is a long-term commitment, and the habits you develop along the way will serve you well in your financial journey.
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FAQs
1. Can I build credit faster with 2 secured credit cards?
Yes, having two secured credit cards can potentially help you build your credit faster. It allows you to diversify your credit profile, increase your available credit, and also demonstrate responsible credit use on two accounts, all of which can boost your credit score.
2. What's the advantage of diversifying my credit profile with two secured credit cards?
Your credit score can increase if you diversify your credit profile by holding a variety of credit accounts, including loans and credit cards. It demonstrates to creditors your ability to appropriately manage a variety of credit commitments, which can improve your creditworthiness.
3. How does having two secured credit cards increase my available credit?
Each secured credit card comes with its own credit limit, determined by the initial deposit you make. By having two secured cards, you effectively double your total available credit. A higher available credit limit can lower your credit utilization ratio, potentially boosting your credit score.
4. Should I be concerned about the initial deposit requirements for two secured credit cards?
It's important to assess your financial situation before opening two secured credit cards simultaneously. You'll need to cover the initial deposit for each card, which can range from $200 to $500 or more. Ensure you have the funds available without straining your finances.
5. What are some key tips for managing two secured credit cards effectively?
To manage two secured credit cards effectively, consider setting up payment reminders or automatic payments, keeping your balances low, reviewing your monthly statements, avoiding opening too many additional credit accounts, and working toward upgrading to unsecured credit cards as your credit improves.
6. Can opening two secured credit cards negatively impact my credit score?
While opening two secured credit cards can have potential benefits, it's important to manage them responsibly. Too many credit inquiries in a short period can temporarily lower your credit score. Additionally, mismanagement of multiple accounts can negatively impact your credit if you miss payments or carry high balances.
7. How long does it typically take to see improvements in my credit score with two secured credit cards?
The timeline for credit score improvement can vary depending on your starting credit profile and how responsibly you manage your secured cards. In general, it may take several months to a year or more of consistent, positive credit behavior to see noticeable improvements in your credit score.
8. When should I consider upgrading to unsecured credit cards?
You can consider upgrading to unsecured credit cards once you've built a positive credit history with your secured cards. Typically, this means making on-time payments, keeping balances low, and monitoring your credit score. The specific timing can vary depending on individual circumstances and card issuer policies.
9. Can I build credit faster with more than two secured credit cards?
While having multiple secured credit cards can provide benefits, opening too many at once may be counterproductive. It's essential to manage the accounts effectively and avoid overextending your credit. Two secured credit cards are often sufficient for most individuals to build credit effectively.
10. Are there any downsides to having two secured credit cards?
The primary downside to consider is the potential for mismanagement, leading to late payments, high balances, or excessive credit inquiries, which can have negative consequences for your credit score. Additionally, securing the initial deposits for both cards may require a significant upfront financial commitment.
References:
https://www.forbes.com/advisor/credit-cards/credit-card-statistics/#sources_section
