When you apply for a credit card, the possibility of not getting approved is a real fear many people face. Credit card approval is never a guarantee, even for those with a good credit history. Instead of worrying, you can set yourself up for the greatest probability of getting approved for a credit card by taking active steps toward increasing your approval odds.
Whether you think you have great credit or have some doubts about it, there are basic steps everyone should take both before and when they apply for a credit card. Regardless of what you think your credit rating is, everyone can benefit from checking their credit score or spending more wisely.
Read on to find out how to get approved for a credit card and ways to improve your chances of approval.
How to Get Approved for a Credit Card
The first task before you apply for a credit card is to make sure you have a sturdy foundation. This means you need to get a basic knowledge of your credit score and what your credit score means, among other things. Here are the key steps to take when you apply for a new credit card.
Here are steps to take to get approved for a credit card:
1. Check Your Credit Score
You don’t want to apply for a credit card without knowing what your credit score is. Rejection of your credit card application doesn’t hurt your score. But the act of applying for a credit card often can cause your score to drop, so it’s smart not to waste it on a rejection due to not knowing your credit score.
Before you apply for a credit card, you should at least know your FICO score or an estimate of it. Nowadays, there are several sources where you can get an estimate of your credit score for free, notably CreditKarma, as well as through any existing credit cards you might already have. Free estimates of your credit score give you a good idea of your standing, even if it’s not exact or as thorough as a credit report.
2. Learn What Your Credit Score Means
Finding out your actual credit score is merely half the battle. Understanding what your credit score means is essential when you apply for a credit card. Your credit score is a three-digit number that falls on a credit score range that will determine whether your credit is excellent, good, fair or poor.
FICO scores are one of the most commonly used types of credit scores by lenders and other institutions. According to myFICO, the FICO credit score ranges can be broken up into the following:
|Credit Score||Rating||Percent of People||Meaning of Credit Score Range|
|300-579||Poor||16%||Credit applicants might be required to pay a fee or deposit in order to get credit cards or a loan. Often applicants with this rating might not be approved for credit at all.|
|580-669||Fair||17%||Applicants with scores in this credit score range are called subprime borrowers. They usually have higher rates and less favorable terms, but greater chances at getting approved for credit than poor credit score applicants.|
|670-739||Good||21%||This credit score range is around or slightly above the average for U.S. consumers. Lenders consider this range good and applicants are unlikely to be delinquent in the future.|
|740-799||Very Good||25%||Applicants with scores in this credit score range demonstrate that the borrower is very dependable. They are likely to receive better than average rates from lenders.|
|800-850||Exceptional||21%||Applicants with scores in this credit card range demonstrate an exceptionally low risk to lenders and are usually given the best rates and terms.|
Where your credit score lies on the overall credit score range will impact your chances of approval and also which types of credit cards you’ll likely be able to get. For instance, if you have a credit score in the fair credit score range, you probably shouldn’t aim for a top-of-the-line, premium credit card as you may face rejection.
3. Get Your Full Credit Report
Free credit score sites will give you a free estimate of your score, but seeing your full credit report is important because it shows a detailed history of your credit. Once per year, you can get a free copy of your credit report from all three major credit bureaus:
Visit AnnualCreditReport.com to get your annual free credit report. Though this report does not include actual credit scores, it includes details you won’t get from a credit score so you can spot and dispute errors, plus you can see and analyze personal credit trends to identify ways you can improve moving forward.
4. Pay All Your Monthly Bills On Time
The biggest factor determining your credit score is your payment history. In fact, your payment history makes up a whopping 35 percent of your credit score. Negative marks on your payment history include things like late payments, delinquencies, unpaid utility or mobile bills that get sent to collections and more.
Remember that it’s not just your credit card payment history that is assessed. It is your payment history across all lines of credit, from personal loans to credit cards to mortgages. You need to be paying all these balances on time, every month, for as long as the debt is outstanding. Consistent timely repayment means you are less of a risk in the eyes of lenders, which can improve your odds of approval.
5. Pay Down Outstanding Debt
Pay down outstanding balances before you apply for a new credit card. When you do this, you will lower the balances that appear on your credit report when lenders review your credit card application. You should always make an effort to pay off your debts and continue to pay your balance down even if you can’t afford to pay it off completely. Lowering your balances tends to increase your credit score as it decreases your credit utilization ratio, which makes up a significant portion of your credit score.
6. Find the Credit Card That Suits You
The credit card you choose to apply for should be the right fit in terms of both what you’re most likely to be approved for, as well as the features you want. Having less-than-stellar credit will naturally limit your credit card options. But with research and careful consideration of what features you need and which you can do without, you can find a credit card that’s a great fit. There are secured credit cards designed for people with fair credit or lower that require a deposit but can help build up your credit score until you can get a regular, unsecured credit card.
You should aim for credit cards that match your credit score range. However, you should also review which promotions and sign-up bonuses benefit you the most. If you’re trying to reduce high-cost debt, then an introductory 0% APR on balance transfer credit card may be smarter than applying for a premium card with flashy perks. Make sure you strategically use sign-up bonuses and promotions to your advantage, rather than just fun perks and freebies.
How to Improve Your Chances of Approval
Knowing what factors matter in the approval process is the first step towards getting the credit card you desire. The next step is knowing how to increase your chances of getting credit card approval, not to mention better terms or rates in the process.
Here are steps you can take to improve your odds of being approved for a credit card:
Lower Your Credit Utilization
Credit utilization is the ratio of outstanding balance to the credit limit. For instancve, if you have a credit card with a credit limit of $2,000, and you carry a balance of $1,000, then your credit utilization ratio is 50 percent. While many people have higher credit utilization ratios than this, the rule of thumb is to keep it below 30 percent. Thus, with a $2,000 credit limit, the optimal credit balance would be $600 or below to keep your credit utilization ratio at 30 percent or less.
A lower credit utilization ratio positively impacts your credit score. It demonstrates that you’re paying more than the minimum payment and that your repayment is outpacing your spending. In the eyes of bureaus and lenders, this is responsible behavior that means you’re less risky as a borrower.
Diversify Your Credit
Diversifying your credit means having a variety of trade lines open. Instead of just having one credit card, you can diversify by having more than one card from different credit card providers. You can use retail cards, which can not only give you great value and shopping offers for signing up but also grows your credit. Additionally, other forms of borrowing such as a car loan, personal loan or mortgage also impact your credit so you can think beyond credit cards when diversifying. The main point is that you need to demonstrate responsible, timely payments for these diverse trade lines, as well as low balances. If you can do this on multiple lines of credit, then banks will look upon you more favorably as a borrower. But that doesn’t mean you should take out a loan just to improve your score either.
Apply Where You Bank
When you apply for a new credit card through your bank, you gain some advantages. Your bank takes into account your deposit history. If you have a good deposit balance, have regular deposits from your job or have managed your checking account well (or all of these things), then the banks understand you manage your finances soundly. As such, your bank is more likely to approve your credit card application than a new bank that is unfamiliar with your history. Existing banking relationships can go a long way.
Include All Your Income in Your Credit Card Application
When filling out an application, you’ll have to include your income — be sure to include your gross pre-tax income. Also, include any additional income streams you may have whether it is a pension, an annuity, rental income or alimony. The banks need to make sure you can pay back the credit card, so having enough income is a critical part of repayment, as well as approval.
Up Next: How to Increase Your Credit Limit
The Bottom Line
Ultimately, your credit score is simply a way for banks and lenders to decide whether you’re trustworthy or not. The lower your credit score, the more likely you are to miss a payment or default on a loan. Practice good financial and credit habits and your score should increase over time naturally, which will open new financial doors in the future.
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