Applying for a credit card is a simple process that can certainly be intimidating; especially if you’ve never had one before or your financial practices have been less than stellar up until now. Don’t let the past determine your future or worry that a credit card approval is out of reach – we all have to start somewhere! Depending on your circumstances, being approved for a credit card could come quickly, or it may require a bit of strategic planning to set the stage for acceptance down the road.
If you’re unsure about where you stand or worry that your application will be denied, follow these helpful tips and suggestions and your chances of getting approved for a credit card will be greatly improved.
1. Know your credit score
The best credit cards require a good to excellent credit history. To decide whether or not to approve an application, lenders look at your credit score, which is calculated by using the information contained within your credit reports. Your credit reports show the amount of debt you owe and if you pay your bills on time.
Credit scores take into consideration a variety of different factors and generally range from a dismal 300, to an excellent score of 720 and above. If you fall within the good to excellent range, odds are that a credit card approval will be as easy as submitting an application and waiting for your card to arrive in the mail. If your credit score is in the mid to lower range, the APR and terms you receive may be less than optimal.
If you have a bad credit rating, it will definitely be more difficult to get approved for a credit card… but not impossible. There are a handful of companies offering credit cards designed specifically for people with bad credit, but these cards often include high interest rates, fees and exceptionally low credit limits. Use one of these cards responsibly, and over time you’ll be able to build up your credit score to qualify for better rates and terms.
2. Reduce your debt
One third of your credit score is determined by how much you owe. High credit card balances are particularly damaging, as they raise your credit utilization ratio. This is the total balance of your credit cards divided by the total credit limit. You want this to be below 30%. For instance, if you have a $10,000 credit card limit, it’s best to keep that balance below $3,000. This is a win-win for both potential lenders and your own financial well-being. By putting an emphasis on lowering your balances, you’ll more likely be approved for a new credit card.
3. Don’t jump at the first offer
With hundreds of different credit card offers and even more combinations of rates, terms and conditions, it pays to be particular when looking for a new credit card. Avoid applying for a credit card that you’re unlikely to qualify for or that falls out of your credit range. Not only with it result in a denial, but could hurt your chances when you apply for another offer. For example, if your credit history is less than perfect, don’t apply for an offer with the absolute best terms that’s designed for someone with an excellent credit history.
Also keep in mind that submitting too many applications can ding your credit score. From the perspective of lenders, multiple applications over a short period of time is a warning sign that you may be having financial difficulty.
Understand the terms and take your time comparing different offers from a variety of companies.
4. Include all sources of income on application
Your credit history tells only part of the story to potential lenders. Their decision is based on a risk assessment of your entire financial status, including your income. If you have a secondary source of income, be sure to include it on your application. At the same time, avoid the temptation to pad or inflate the numbers – that would be a federal offense punishable of up to $1 million and/or 30 years in prison. Yikes!
Failure to disclose additional sources of income may negatively affect your debt-to-income ratio, which helps to determine your ability to make payments. If the ratio is too high, your credit card application will be denied, and there are only two ways to lower it – increase your income or reduce your debt (above). A substantial, reliable source of income may be the thing that tips the scale in your favor for a credit card approval.
5. Request a credit limit increase
Another way to lower your credit utilization rate and improve your chance for an approval is to raise your total available credit. If you already have a credit card or another line of credit in good standing, contact the lender and request an increase to your credit limit prior to applying for a new credit card offer. This will create an ‘hard’ inquiry on your credit report, but if you do it far enough in advance (60-90 days) it will definitely give you a leg up when attempting to open a new credit card account.
Credit cards are a privilege to own and use. If a major lender turns you away, you may find that a local credit union is more willing to give you a chance by providing a low limit, high APR credit card. Prove your worth by using it responsibly and in 6-12 months you should be able qualify for a credit card that better suits your purposes with more favorable terms and conditions. There’s no better time to start your credit journey than now!