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Apply for Credit Card

David Warner

David Warner

Financial Advisor

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Given the reputation and negative connotation that surrounds the credit industry, it can be an intimidating thought and experience to apply for a credit card. In previous articles, we discussed how the national debt for an average American household is quickly nearing $8,000. With that being said, the best way that you can apply for a credit card with confidence is through enhancing your knowledge, so you may set yourself up for success. What you might not realize is that these character traits are precisely what credit lenders are looking for. So, if you are in the market or thinking about opening a credit card, one of the first things you need to do is research.

In all honesty, given the digital age we live in, to make any financially sound decision, you should be doing extensive research. Be sure to give great thought as to whether this idea is feasible, given your budget and personal finances. Regardless, the most thrilling part about the entire experience is all the different options that are available to you; they are endless! Do you want a cruise credit card? How about your favorite clothing store’s new credit card? Do you fly often? How about an air miles credit card?

Before you can begin the entire process though, there are a few measures that you must take into consideration, and this is where we come into the picture. In this article, we are going to explore all the different facets of applying for a credit card, including those with no credit, poor credit, and even excellent credit!

 

Things to Know Before You Apply

With endless amount of information out there, applying for a credit card is not as simple as giving your name and getting approved. There are different factors that correlate to whether you will be approved for that new piece of plastic. With that, let’s look at things you need to know before you apply for a credit card for both newcomers and people with established credit lines:

 

 

Newcomers with No Credit

When applying for a credit card, newcomers will have a much harder time getting approved than a person with established credit. Although not as difficult for a person with bad credit, a newcomer needs to take a couple things into consideration.

1. You Can Only Apply for Certain Credit Cards

For many companies, through proper research, you can find exactly what kind of credit score you need to apply for specific credit cards. Specially formulated credit cards for certain credit brackets will not be accessible to newcomers. With that said, it is important to do your research and find out which credit card companies are the best for people with no credit. One of the best options are typically student credit cards, store-based credit cards, or secured credit cards.

2. You Will Have a High Interest Rate

Since you are now building credit, if you want to apply for a credit card, it is important to note that you will have a higher interest rate. Since credit card issuers consider you a risk, given they have no history of your past financial decisions or habits, they charge a high interest rate for the first 6 months to a year of your having your new credit card.

3. You Will Be Approved for a Low Amount

The chances of you being approved for a credit card with a high amount is almost unlikely. The reason for this is because credit card companies want to start slow, so they can begin trusting you and your spending habits. Essentially, with them taking a risk by lending you money, they are taking a risk of you not paying it back. Once you begin to pay it back through monthly installments, you can request a credit increase within a year or two. Certain financial institutions will automatically increase your credit after a certain amount of time with good standing.

4. The Next 6 Months Are Crucial

As a newcomer, the next 6 months are crucial. Therefore, it is of utter importance that you pay your credit card on time. We highly suggest trying to pay more than the minimum balance, and, if you can, pay the entire balance each month. One word of caution though: don’t apply for any new credit lines at this time.

 

For Seasoned Credit Card Holders

The rules of the game are much different for seasoned credit card holders. Unlike newcomers, you have established credit. Whether good or bad, this will affect if you get approved when you apply for a credit card. Let’s look at how applying for a credit card affects people with both bad and good credit.

 

People with Bad to Low Credit:

1. You May Not Be Approved

With bad or poor credit, credit lenders are taking an insightful look as to your spending habits, how responsible you are, and different aspects of your character. This will tell them whether you should get approved for a credit line.

2. You Will Have High Interest

Like newcomers, taking a risk on a person with poor or bad credit can leave a financial institution uneasy. Their way of ensuring payment is by adding more strict rules such as heavier late fees and higher interest rates.

 

People with Good to Excellent Credit:

1. You Can Negotiate the Amount and The Interest

Having great credit is something many people strive for and, with excellent credit, you receive many perks that come from being a responsible person. Think of these perks as the benefits of paying credit lenders their money back on time and more than expected. These perks include the power to negotiate the amount you want and even the interest rate for a designated period.

2. They Will Look at Your Records

As with people with poor lines of credit, all financial institutions will look at different aspects of your credit history. If in good standing, these records will prove that you are responsible, pay back in time, and have established a relationship with credit insurers.

 

The Application Process

The application process varies for people depending on the situation. However, they ultimately use the same method as to whether you will be approved. With that, before you apply:

  • Search for the best credit card lender that meets your interests.
  • Get to know the fees and interest rates of the credit card.
  • Ask about the application process.
  • Ask if it will affect your credit score when you apply. Numerous companies will do a soft inquiry to see whether you are eligible.
  • Search the best perks and opportunities certain credit card companies offer.

Once you have found the best credit card company for you, it is time to apply. During the application process you will be asked information ranging from your name to your social security number. This information is used to take a deep insight into your personal information when it comes to banking, financial history, and credit standing. This then totals your FICO score. If you have not had the time to learn more about credit score, here are the factors that comprise your FICO score:

  • Credit History
  • Credit Utilization
  • Outstanding Debt
  • Have You Ever Been Late?
  • Credit Mix

These different factors then are tallied into a number, ranging from bad to excellent. The number range are as follows:

800 and Up – Excellent
740 to 799 – Very Good
670 to 739 – Good
580 to 699 – Fair
579 and Lower – Poor

After the credit lender assesses your FICO score and your personal finance history, they will decide whether you are approved. Of course, if you are approved, it is a moment to celebrate. However, do not be discouraged if you were rejected.

The only thing is now, if this credit card application process has been published as a hard inquiry on your credit, which chances are it has, it is important to not apply for another credit card for at least 4 – 6 months.

The Aftermath of Your Approval

Getting approved for a credit card is celebratory worthy. Whether it’s your first credit card or one of many other credit cards, it is important to be financially smart with your new credit line. Note that this new credit line was a hard inquiry, therefore your credit went down, most likely, by one point. With that said, there are many benefits now that you got approved for another credit card that you will notice through time.

It Will Show Up on Your FICO Score

This new line of credit will show up on your FICO score the next time you inquire about a credit check or a company does. This may happen during the process of buying a house or purchasing a car. If in good standing, this new line of credit will be another example of how responsible you are and how you can handle borrowed money.

It Will Diversify Your Credit History

Diversity, as far as credit, is one of the most important aspects of determining your FICO score. One credit line alone is not enough to determine whether you are great at handling credit. Therefore, through time, building more lines of credit, such as a car loan or home loan, will help create more diversity, which will help credit issuers see that you handle credit.

It Builds a Cushion of Emergency

Credit alone is extremely helpful during emergency cases. Having another credit card overall gives you piece of mind that, if something does occur that you need the money for, you can use that money and pay it back over regular installments. Another line of credit gives you piece of mind that you can use it as a safety net.

Last Tips to Manage Your New Credit Card

No “everything you need to know” article would be completely without some last tips. These tips will ensure that you successfully build your credit or keep your credit in good standing. For your new credit card, it is important to:

  • Never max out the card completely.
  • Keep your availability below 50% if possible.
  • If you can pay the whole card in 30 days, do so. With this, you will not accrue interest payments.
  • Never allow yourself to be late on a credit card payment.
  • Always go over your monthly statements to make sure of no fraudulent charges.
  • If you cannot pay more, at least pay the minimum payment every month.
  • Negotiate the interest rate of the credit card once you’ve had it for a while.
  • Be aware of all the late fees, interest charges, and potential yearly fees.
  • Do not apply for a new credit card within 6 months of good standing with this card.
  • Do not apply for a car or home loan within 3-6 months of opening a new line of credit, unless you have to or your credit is in good to excellent rating.
  • Find out if you receive one monthly free credit check from the credit card company. If so, check it every 3 months or so to see how you credit has increased.

Is Applying for A Credit Card a Good Idea?

The reality is, no one knows your true ability to handle a new credit card, except yourself. Your credit history serves as a window into your financial habits and ability to handle money and numerous services. With that said, if you want to apply for a credit card, it is important to know the company you are applying for and the requirements. For a newcomer and a person with poor credit, being picky is not an option. However, there are plenty of reputable and successful credit card companies that will accept you into their family. For a seasoned credit card holder, ensuring that you keep track of your money to make sure it only affects your credit score in a positive way only leads to successful results. Whether you are new or have great credit, apply for a credit card if you know you can manage the responsibility!