These days, having a credit card on hand is almost essential. This is especially true if you plan to shop online or wish to make larger purchases — when used responsibly, credit cards can help you save or even make money. If you’re new to credit cards, you’ll first have to figure out how to apply and get approved for one.
How to Apply for a Credit Card
The process of applying for a credit card is a lot easier than you might think and following the right steps can help you find a great credit card you’ll love. There are several steps you should take to find and apply for the right credit card, and the order of these steps is crucial.
Follow these steps to apply for a credit card:
1. Check Your Credit Score
Understanding your credit score and credit report can help you determine which credit cards to apply for. If you have poor credit, for example, then you’ll likely have to get a secured credit card, which requires a cash deposit and helps you build credit. If you have fair credit, you might want to avoid applying for a credit card that states upfront that only applicants with excellent credit will be approved.
Fortunately, nowadays there are several ways to check your credit without triggering a hard inquiry. Also called a hard pull, this type of credit inquiry can ding your credit score temporarily. Thanks to resources like CreditKarma and credit bureaus like Experian, you can get credit scores using a soft pull. This won’t negatively impact your score and is free.
You can also get your full credit report for free once every 12 months. You can do this through AnnualCreditReport.com. Take some time to review your report. It is not uncommon for your credit report to contain errors, such as old collection accounts that should have already cleared off, that could prevent your credit card application being approved.
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2. Establish or Building Your Credit Score
Many people applying for their first credit card can find themselves in a conundrum. When you apply for a credit card for the first time or apply for a credit card with no credit, there’s a good chance you will simply not have a credit score because you have so little credit history. This doesn’t mean you have bad credit — you just have no credit and you need to start somewhere.
First-time applicants likely have a thin credit file, which means you have few or even no credit accounts listed on your credit reports. Due to a thin credit file, banks or lenders will not be able to calculate a credit score, and this can lead to your being denied on your credit card application.
You can find out if you have a thin credit file when you check your credit score and credit report. If you do have little to no credit history, there are a couple of methods to develop your thin credit file. A great start is to apply for a secured or retail credit card, which is usually easier to get approved for. You can also become an authorized user on someone else’s credit card, such as a parent or spouse, which will help you build your credit as an extension of there’s — just make sure you can trust the person’s credit habits and vice versa.
Related: How to Build Business Credit
3. Improve Your Credit Score
Improving your credit is a constant process, so this step isn’t just for people with no credit or bad credit. However, improving your credit is especially important for people with poor credit because your credit options will be severely limited until you make a change.
Here are some basic ways to improve your credit:
Pay Your Bills on Time
Your financial behavior is critical to how lenders judge you. Thus, when lenders review your credit report, such as when you submit a credit card application, they’re particularly interested in how reliable and timely you are when you pay your bills. In short, lenders use past payment history as an indicator of future performance.
Paying all your bills on time can positively affect your credit score. Keep in mind that you’ll want to pay all bills in a timely fashion. This includes bills for credit cards, loans (such as auto loans or student loans) but also rent, utilities, phone bills and more. Paying one of these bills late or having unpaid bills sent to collections can negatively impact credit scores. The good news is there are plenty of resources and tools available to help you pay your bills on time. Automatic payments or calendar reminders can help ensure you pay on time every month.
Late or missed payments appear as negative marks on your credit report for seven years. However, the impact of these negative marks on your credit score declines over time. Meaning, older late payments have less influence than more recent ones. Either way, if you have any payments that are behind, get them current as soon as possible.
Pay Down Debt and Keep Balances Low on Credit Cards and Other Revolving Credit
The amount of your outstanding debt is an important factor in determining your credit score. The key metric here is called the credit utilization ratio, which is calculated by adding up all your credit card balances and dividing that amount by your total credit limit. For example, if you charge $3,000 in credit card purchases one month and your total credit limit across all your cards is $10,000, then your credit utilization ratio is 30 percent and will remain so until you pay down your balance.
Having a credit utilization ratio of 30 percent or less looks good to lenders. You’ll want to keep your credit utilization ratio in this range especially when applying for a credit card, loan, mortgage or another credit line. To determine your average credit utilization ratio, review all your credit card statements from the last 12 months. Sum up the statement balances for each month across all your credit cards and divide by 12, giving you the average amount of credit you use each month. Take this number, divide by the total credit limit across all cards and you will get your average credit utilization ratio.
People with the highest credit scores tend to have very low credit utilization ratios. For lenders, a low credit utilization ratio signals good financial behavior because you haven’t maxed out your credit cards and likely make regular payments.
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Dispute Any Inaccuracies on Your Credit Reports
Don’t let inaccuracies on your credit report undermine your chances of getting a credit card. Check your credit reports at all three personal credit reporting bureaus — Equifax, Experian and TransUnion — for inaccuracies. Unfortunately, credit mistakes occur more often than you might think. Incorrect information on your credit reports can easily pull your scores down, so confirm that all accounts listed on your reports are correct. If you find errors, dispute the information with the credit bureau and get it corrected immediately.
4. Check for Prequalified Offers
For credit card prequalifications, card issuers use limited personal information to conduct a soft inquiry of your credit report. With a soft inquiry or soft pull, your credit score is not negatively impacted as happens when a hard pull is conducted. A soft inquiry provides the credit card issuer with enough basic credit information to determine whether you’re likely to qualify for the credit card.
A prequalification can be useful for credit card applicants, but bear in mind it’s not a real application for credit. Even if you’re prequalified for a credit card, you can still be denied after you submit an application.
Another important note is the difference between prequalification and preapproval. Credit card prequalification occurs when you submit your information shopping for credit card offers. Preapproval occurs when a credit card issuer sends you an offer after determining you meet the requirements for a particular card. Prequalification is no guarantee of getting a card, but preapproval is more likely to mean you’ll be approved.
5. Research Different Credit Card Options
You’ll want to get a feel for what credit card options are out there, with many options catering towards different people and lifestyles. Choosing the best credit card for you is contingent on many factors. This depends on your personal needs and preferences, how you plan to use the card and your credit and financial history. Here are some things to consider when looking at potential credit cards:
- What is the card’s annual percentage rate (APR)?
- Is there an annual fee?
- What is the credit limit?
- Are there any rewards programs?
- Are there any current incentives or other valuable promotions?
You should always research each card before applying to avoid any surprises. Take your time comparing cards so you choose one that best meets your needs. With a little research, you can no doubt find credit cards with no annual fee or credit cards with low APRs that suit your needs.
6. Review Mail and Online Offers
Many credit card companies advertise their offerings through direct mail. Keep an eye on your mail and hold on to some offers so you can compare cards, but remember that some offers do come with expiration dates.
Credit card companies also target users online. You may see an ad or receive an email offer for a specific card. Take a look at any offers online and compare those with mail offers. Some offers are customized for specific groups or mailings, so you could find an offer that is much better for you personally.
7. Apply for a Credit Card
Next, you’ll need to actually apply for a credit card. This application paperwork helps banks determine if you’re eligible for a specific card. When you apply, make sure you complete all paperwork — incomplete applications increase the risk of a longer waiting period or denial, even if you might otherwise qualify for the card.
Here a few ways to apply for a credit card:
- Mail-in offer: You can mail-in an offer form that you received in person or by mail. Be prepared to wait a bit longer for a decision if you apply this way due to the mailing process.
- Use a code from an offer online: Mailed and emailed offers often come with a code, which you can use to complete an app online. Simply follow the instructions in your offer email or letter.
- Use the link on a website: If you see an offer advertised online either on a bank or online publication website, follow the link to the application website. Sometimes these links let you get extra sign-up bonus points or special deals.
- Go into a bank branch: If you’re applying for a card branded or offered by a physical bank, you can visit a bank branch and apply in person. This can be a good choice if you have any questions about the card or about the application process.
8. Report All Income on Your Credit Card Application
You’ll need to report your income on your application. This gives the credit card companies a better picture of your financial situation. You should include your gross income from all sources. If you have any part-time gigs, receive child support or rent, or have other alternative incomes, be sure to report those, too.
While it may feel weird listing this personal financial information, it’s essential. Credit card companies want to make sure you’ll be able to pay off your debt before they give you a card. In fact, the law actually requires they do that, especially in the aftermath of the housing bubble and crash, which had been fueled by loose lending practices. Your reported income also helps determine your credit limit. When your income increases, you can report it to your credit card issuer to request a higher credit limit in the future.
9. Complete Balance Transfer Sections If Applicable
Some individuals choose to transfer an existing balance from one card to a new one. This is often done to take advantage of a great APR deal or as a way to merge debt into one place.
If you’re planning to initiate a balance transfer at the start of your application process, be prepared to provide detailed information related to your current credit card. This may include the card’s balance and the credit card account number. This information is necessary to transfer the balance. It’s a good idea to look at balance transfer details before you apply, so you understand all terms, fees and APRs.
10. Await a Decision
Finally, you’ll need to wait for a decision. If you apply online, you may hear back within moments or a couple of days. If you apply by mail, it may take a couple of weeks to hear back.
Your best bet is to go about your everyday life and not worry or stress about the approval process. With extra care and consideration, you can find a perfect credit card for you.
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