A credit card can be an invaluable financial tool. It can help you make bigger purchases without a handful of cash. A credit card can also help you budget more efficiently and build your credit portfolio.
You must apply to be eligible for a credit card, but applying for a credit card is not as daunting as it sounds. Follow our step-by-step guide to increase your chances of getting approved when applying for a credit card.
Why you might need a credit card
Credit cards are safer than carrying cash
If you lose a bunch of money and someone else gets it back and decides to spend it, there’s not much you can do to get your money back. Credit cards, on the other hand, are a lot more difficult to steal and use. The use of the credit card leaves a “paper trail” of the charges that the police can use to find the culprit.
And most credit card providers don’t hold you responsible for fraudulent charges on your account – if your card is stolen and used without your consent, your creditor will waive the charge and get your money back.
International travelers in particular are often advised to carry as little cash as possible and to opt for credit cards instead.
Some businesses require you to pay with a credit card
Gone are the days of “cash only” signs in restaurants and clothing stores – today’s retailers are all focused on plastic. It eliminates the possibility of accepting fake tickets and allows consumers to purchase the products from the store online.
Companies that require a deposit or withholding for damages (such as hotels, hostels, and car rental companies) typically only accept credit cards as a form of payment.
Credit cards help you build credit
A consumer without a credit history is a total risk for lenders. Think about what you might want to buy in the future. If you want to buy a house or a car, lenders will look at your credit history.
About 35% of your credit score is calculated from your payment history. Paying your credit card bills on time and in full each month increases your credit score and makes you a more attractive candidate for special offers and loan approval in the future.
What to consider before applying for a credit card
Your current credit rating
Consumers with bad or no credit can be a liability for a credit card company. If you have bad credit on your record, studies have shown that you are less likely to make payments on your cards.
If you don’t have credit, you are a total risk to the credit card company. No credit means there is no data to offer clues to your spending and repayment habits. It is much cheaper for credit card companies to deny credit to those with weak credit than it is to continue with payments, so don’t be surprised if your bad credit gets in the way of your requests.
Fortunately, a lack of credit or bad credit is not a permanent condition. You may qualify for a secured credit card, which is a special type of card that requires you to pay a security deposit before your credit card company grants you a line of credit.
If you are a student, find out about student credit cards, which are specially designed with low cost lines of credit for young people who have not yet had the opportunity to accumulate the credit they would need to be approved for a standard card.
Limit the number of credit cards you apply for
When you apply for a card, the credit card companies perform what is called a “full investigation” of your credit report. These show up on your credit report as inquiries. And if you have too many tight checks on your report, your credit score can suffer. Limit the number of credit cards you apply to avoid accumulating too many inquiries on your account.
Some large banks may offer a prequalification process that performs a gentle check of your credit to let you know if you are likely to be approved or not before you apply. Unlike hard checks, indirect checks will not affect your credit score. Ask about prequalification checks if you think your preferred creditor might turn you down.
You can accumulate credit without opening a credit card
If you’re only interested in opening a credit card to build your credit profile, there are plenty of other ways to create credit besides opening a credit card:
- You can become an authorized co-user on another person’s credit card without actually using the card.
- You can also take out and repay a small personal loan from your bank or checkout.
- Contact your landlord and request that your rent payments be reported to the major credit bureaus.
How to apply for a credit card
Step 1: Understand your current credit situation
The first step in finding the right credit card for your needs is knowing your credit score and understanding what’s on your credit report. You are entitled to a free extract of your credit report from each of the 3 major credit reporting bureaus once every 12 months.
Request and read your credit report carefully and make sure there are no errors on your account that could lower your score. Know your credit score and where you stand on the spectrum. Credit card companies generally consider the classifications as follows:
If you have a good or excellent credit score, you will have more options when it comes to credit card company selection, rewards, cash backs, airline miles and more. You can also usually get approved faster and see lower interest rates compared to someone with a lower credit score.
Step 2: Increase Your Credit Score
If you have bad credit, your credit card options will be limited. Take a few months to improve your score to increase your chances of getting approved and lower the interest rates you have to pay.
Here are some steps you can take to increase your credit score:
- Keep a low balance on any credit cards you’ve ever opened. You may want to schedule automatic minimum monthly payments on your accounts so you don’t have to worry about forgetting an invoice due date.
- Continue to make regular payments on your car loan, student loan, mortgage, or any other debt you owe. If possible, pay more than the minimum payment each month.
- Avoid closing open credit card lines, even if you don’t use them. Closing a credit card reduces your available line of credit, which can hurt your score. If the temptation to have the credit card is too great to avoid spending, place the card in a locked desk drawer where it is out of sight or leave it with a family member or trusted friend.
- If you have fair credit and a new account, your credit score will improve just as a matter of time; The age of the account is responsible for about 15 percent of the makeup of your credit score.
Looking for more tips to improve your credit score? Check out our new year’s guide to leaving bad credit behind.
Step 3: Compare offers and choose where to apply
Look for credit card offers based on your credit score. Some of the factors you will need to consider when comparing credit cards include:
Note that some creditors may offer low introductory interest rates that are only valid for a limited number of months after opening the card. Once the introductory period is over, the interest rate can increase significantly. Be sure to ask a representative about the difference between introductory interest rates and standard APRs before committing to an application.
Rewards and Bonuses
From cash backs to free airline miles to reward points, most major credit cards have unique loyalty schemes. Compare a few reward systems and decide which bonuses interest you.
Some credit cards charge an annual fee in addition to interest payments, although many credit cards do not. The annual fees range from $ 50 to $ 500 depending on the benefits offered by the creditor.
If you travel internationally a lot, ask a representative what types of fees are charged if the card is used abroad.
After choosing the credit card that suits your needs, apply online or through your local bank or credit union. You must disclose information about your income, social security number, and employment status on your application. Most companies now provide instant approval if you apply online, but some can take five to 10 days to offer you a decision.
Apply for your card today
If your credit application is rejected, don’t give up hope! Most major banks and creditors allow their representatives to negotiate if a claimant is refused. If you have proof of income and documents of a recent financial difficulty (such as an unexpected medical bill or a costly auto collision), your creditor of choice might be willing to work with you by issuing you a secured credit card in a bankruptcy. first time.
Although secured credit cards have strict spending limits when issued, they can become an unsecured card in as little as 6 months with regular on-time payments. Don’t be intimidated by card requests. Narrow down your wishlist, apply, and use your credit card to your advantage today.