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7 Things to Know Before Applying for a Credit Card

7 Things to Know Before Applying for a Credit Card

Maybe you’re applying for a new credit card as a person with an already-established credit history. Or, you’re a newbie and need to establish a credit history. Regardless, there are 7 things to know before applying for a credit card. This information will improve your chances of being approved for a credit card.

Starting Out

If you’re applying for a credit card for the first time, there three ways to approach it.

The first way is to find a bank that offers secured credit cards. What this means is you’ll be required to make a modest cash deposit, which will secure your line of credit. Your credit limit will most likely not exceed the cash deposit. Consider it a probationary period of sorts, in which you’ll be monitored to see how well and responsibly you handle your credit card. That means no late or skipped payments, and no over-the-limit purchases.

Once you’ve established a credit history of impeccable standing for six months, up to a year, it gets easier. You will increase your odds of getting approved for an unsecured or standard credit card.

A second way of getting a credit card as a first-timer, or someone who has bad credit, is to get a co-signer, who will cover your debt if you fail to make payments for whatever reason. It’s necessary for your co-signer to possess good credit, so choose wisely. With a co-signer, whose credit is in good standing, you’ll have a better-than-even chance you’ll be approved.

A third way to increase the likelihood of being approved for a credit card is to make an application for a credit card where you bank, and have already opened a savings and / or checking account.

Don’t Apply Too Often

Don’t submit an application for several credit cards all at the same time. What happens is your credit score will take a hit, and lenders will look askance and consider you a bad risk for repayment.

Be prudent and bide your time searching for the appropriate card you qualify for. If you want to build a credit history quickly, keep your credit requests infrequent, no more than twice in any one year.

The Two Pillars of Credit

Credit reports and credit scores are what you will build your credit with. Familiarize yourself with these two terms before you begin filling out a credit application.

Credit reports are produced by a triad of credit bureaus: Transunion, Experian, and Equifax. Each credit bureau compiles all the information that makes up a credit score. Your credit score will differ from credit bureau to credit bureau. This is because all creditors do not submit credit information to all three bureaus.

Therefore, look at all three credit bureaus to determine the status of your credit. You’ll discover as you receive your credit reports from each credit bureau neither your credit reports nor credit scores will be the same. To find out your credit scores, go on AnnualCreditReport.com for a free credit report each year. Visiting the credit bureau websites themselves you will pay a modest fee.

Checking your credit scores on any of these major credit bureaus is only one half of learning to monitor your credit. The other half is checking to see all the information is accurate. Any error your credit report may contain could have an adverse effect on your credit score, and weaken the health of your credit.

It’s sad to say, but credit report errors show up all too frequently. The FTC reports 20% of consumers find errors in their credit reports. However, you can have the error(s) deleted by requesting a dispute claim form from the credit bureau. Fill it out, send it, and follow up to make sure it has been expunged from your credit record. Be vigilant about checking your credit reports for errors, so you’re always aware of what shape your credit is in.

The Anatomy of a Credit Score

Credit scores are rated according to three categories: excellent, good, and average. The FICO rating system is a scale starting at 300 and ending at 850. Any score below 670 is below average or bad credit. 670 to 699 is considered good, 700 to 850 excellent.

FICO uses five variables to figure out your credit scores. The largest percentage of your credit score is your payment history (35%). Timely payments will strengthen your score, late payments diminish it. Next is the amounts owed (30%), followed by your credit history (15%), new credit accounts (10%), and forms of credit (10%).

Creditors and Debt-to-Limit Ratio

Creditors, when they look at your credit reports, want to see you have a debt-to-limit ratio that is 30% debt to 70% of your accessible credit limit. For example, if you have a credit limit of $5,000, don’t put more than $1,500 in purchases on your credit card.

Spread It Around

Handle different forms of credit, such as cash back, frequent flyer miles, personal, business, and student loans. Having different types of credit will impress your creditors, especially if you pay all of them on time. What this says to creditors is you’re capable of managing various types of credit. This means you’re lower risk, which makes you a highly desirable applicant.

Promptness Results in a Better Credit Score

It almost goes without saying. Be prompt with your payments in all your financial responsibilities, not just with your credit cards and loans. This includes the rent or mortgage, phone bills, heating and cooling bills, cable, and so on.