Applying for a credit card can be a huge step towards achieving your financial goals. For example, having a credit card can help you achieve a good credit score that will play a major role in helping you obtain the most reasonable interest rates on loans and mortgages.
Usually, the process of applying for a credit card is often straightforward and very easy. However, to qualify for one, there are certain minimum financial requirements you have to meet in order to be approved for one.
It’s therefore important to educate yourself beforehand about what to expect before applying and how to increase your chances of being approved.
In this article, we discuss some of the most important things you need to know before applying for a credit card, including how to apply for one. Read on…
Things You Should Know Before Applying for a Credit Card and How to Apply?
While applying for a credit card may seem easy for some people, for others, it may look like a hassle. However, since credit cards are the best tools that you can use to build your credit, you cannot avoid them altogether. There will come a time when you will need them. Here’s what you should know before filling out a credit card application.
Today, roughly 73 percent of all families have at least one credit card. About 60 percent of cardholders are “convenience users” – they avoid interest charges by paying balances in full each month. American Bankers Association
1. Learn About Credit Scores
The first thing you need to do is learn about credit scores. As you probably know, there is good credit and bad credit. Of course, there are criteria that are used to determine one’s credit score.
Here is how credit scores are typically classified (Source: Experian);
- 300-579: Very Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very Good
- 800-850: Exceptional
The truth is, not many (if any) credit card companies will approve your credit card application if your credit score is bad. Most reward credit cards, for example, are known to mainly approve those with good or excellent credit scores.
This is something you need to keep in mind before applying for one. If you have always struggled to maintain a good credit score, then you might want to reconsider applying. Alternatively, you can wait until your credit score improves to apply again.
If your credit score is already damaged, you can always go for cards that are specifically designed for people with poor credit.
Again, before applying for a credit card, it’s important that you obtain your credit score first. You need to know where you stand. You can access your credit score from some of the most popular credit bureaus like Equifax.com, MyFico.com, and Transunion.com.
Your credit score is usually calculated based on various factors such as credit card utilization, repayment history, the total number of accounts, length of credit history as well as the number of credit inquiries.
2. Decide What Type of Credit Card You Want
Now that you already understand how your credit score impacts your chances of getting approved for a credit card, it’s now time to determine what type of card you really want.
Of course, your choice will largely depend on your personal preferences. For example, do you want a card that will earn you travel points, cash back, or miles? What type of purchases do you intend to make? How much will the purchases cost and are they frequent purchases?
If you already know what you want, then here are some of the factors you need to consider when choosing your ideal credit card;
- Interest rates
- Reward categories
- Annual fees
- Redemption options
- Sign up bonuses
If this is your first time applying for a credit card, you will want to consider a card that has low-interest rates and low or zero annual fees.
In case you’ve previously experienced problems getting approved for unsecured credit cards or don’t have a credit history, you might want to consider taking a secured card which is mainly used for the purpose of building credit.
3. Find Out If You Prequalify
Some banks allow their customers to see if they are prequalified for a credit card. This form of inquiry is commonly known as a Soft Inquiry. A soft inquiry is pretty much like checking your credit score, so it won’t affect your credit score in any way.
A soft inquiry does require you to fill out a formal application though.
If you’re pre-qualified, it simply means that you’ve met all the requirements. However, even after finding out that you’re prequalified, you’ll still need to submit your application for the credit card and wait for the approval.
4. Include Your Income In The Credit Card Application
Although credit card issuers often consider credit scores as an indicator of creditworthiness, these scores usually don’t reflect your income. It’s important to note that lenders use your total income in order to calculate your debt-to-income ratio. This helps to determine whether or not you’ll be able to make repayments on your credit card.
Before you apply, make sure that your income is higher compared to your debt. If you don’t have enough income, you may want to get a family member, friend, or any other person to cosign for you. If you’re a student, you may have to wait until you get a job or simply ask your parents to cosign for you. This will, of course, increase your chances of getting approved for credit.
5. Get Your Finances In Shape
If you really want your credit card application to be approved, then you’ll need to review your finances and fix where they need to be fixed.
This means paying up all your debt before applying as this will significantly improve your credit score and of course, increase the chances of being approved.
Why does paying your debt off work? Well, it works because the moment you pay it off, your credit utilization drops. In fact, improving your credit score doesn’t take a lot of time- you can see an increase in just 30 days.
You might also want to fix your credit report errors before submitting your application. Some credit report errors must be fixed, otherwise, they might cause big issues later on.
If you have noticed even a slight error on your credit report, be sure to contact the credit bureaus and ask them to correct the errors- of course, after explaining how the errors came about.
6. Submit Your Credit Card Application
After all is said and done, you’ll finally submit your application officially. Usually, the easiest way to apply for a credit card is online. Once you figure out where to apply for one, make sure you fill in these details in your application;
- Your full legal name
- Your physical address (No card issuer will approve your credit card application if they don’t know exactly where you reside).
- Date of Birth
- Your annual income
- Your individual taxpayer identification, Social Security Number, or any other form of ID required.
Now all you have to do is wait and hope that your credit card will be approved without any issues.
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What If My Application Is Denied? How Do I Minimize the Chances of Being Rejected?
If your credit card application has been rejected, do not despair. It happens sometimes- and sometimes, people end up being approved later on.
The first thing you need to do is learn why your application was rejected before giving up or applying for a different credit card. Your credit card issuer will most likely issue an explanation in the form of an email or letter. The explanation letter may also include helpful tips on how to minimize rejection on your next application.
And while at it, it may also be a good idea to request them to reconsider your application. You just never know…
Something else you’ll want to do is closely examine your credit report to ensure that there aren’t any errors. That’s why we’ve mentioned about double-checking your credit report and having any errors fixed before applying.
When it comes to credit card applications, there is no guarantee that you will automatically get approved, especially if your credit report is not very good. However, there is always something you can do to improve your credit score and increase your chances of being approved.
Hopefully, this article has made your credit card application much simpler for you. Follow the above tips and guide and increase your chances of being approved for a credit card.