Credit cards are one of the most common ways to finance debt and construct a stable financial foundation. Prudent card use can lead to big benefits for individuals, especially if they’re trying to establish or rebuild credit profiles. Applying for a credit card, for example, is a solid first step toward getting a low-interest auto loan or mortgage.
Whether you’re just starting out, looking to repair damaged credit or wanting to get a travel rewards card, it helps to know exactly where to go and what to do in preparation. Here are five steps you’ll need to know when applying for a credit card.
1. Understand your credit score
The type of card you qualify for heavily depends on your credit score. If you’re researching options and become attracted to cards that have huge welcome bonuses or pay for checked bags on a flight, those types of cards may be beyond your grasp as a first-time applicant. Premium credit cards tend to require excellent credit, and knowing where your score falls is the first stage of the application process.
There’s no sense applying for a card that’s out of reach because a subsequent denial can hurt your credit score. With the wealth of online resources, you can gauge what approximate score you’ll need to gain approval for almost any card on the market. Generally, a score above 800 is considered excellent, while 670-739 ranks as good and 740-799 is very good. Fair credit stops at about 580, and anything lower than that is poor credit, according to FICO.
2. Access your credit score for free
Fortunately for consumers, there’s a wealth of available resources designed to provide personal credit scores. There are numerous services to help you, including AnnualCreditReport.com. Federal law mandates that each of the three consumer credit bureaus — TransUnion, Experian and Equifax — provide credit reports for free.
This can not only give you an idea of what your FICO score is, but you can also elect to receive notifications on activity that might impact your score going forward. You can also use this tool to verify the accuracy of your payment histories and the creditor information contained therein.
3. Select the card that fits your profile
Overreaching for a card that you won’t qualify for is not suggested, and neither is settling for less. An unsecured card, which you’ll pledge no bank deposit as collateral, should be the goal of any first-time credit card applicant. Not having to put down cash equal to a credit line can allow you to build an emergency fund or open a savings account.
If you have poor or no credit, a good compromise is an unsecured card like the Capital One® Secured Mastercard®, which could land you a $1,000 credit line for a $200 deposit (after making at least five on-time monthly payments). If your credit standing is fair, the Milestone® Gold Mastercard® work, as it offers a quick pre-qualification process without dinging your credit score. Good credit will earn you access to most cards. However, one card you’ll need excellent credit to obtain is The Platinum Card® from American Express, which offers attractive travel perks and benefits with a $550 (See Rates & Fees) annual fee.
4. Where to apply for a credit card
You may get pelted with credit card offers in the mail but the easiest, fastest and most convenient way to apply for a credit card is on an issuer’s website. You’ll need some basic information to apply, such as personal and income data. If you’re not a fan of providing sensitive data online, a paper application will do the trick. But expect a decision to take much longer than an electronic submission, which typically gives you an approval decision in a minute or less.
If you’re in the application phase, you’ve likely narrowed your top picks down to a single card that fits your credit profile and needs. If you’re still undecided, don’t be tempted to apply for five cards in one sitting. Each inquiry will require the issuer to pull credit, and those activities can hurt your FICO score and limit your ability to get approved in the future for more cards.
5. Stay on the right path
Whether you’re undecided on applying for a credit card or looking for better rewards, never lose track of your credit standing and how to improve it. If you have personal, student or auto loans, make certain that you pay those obligations by the due date each month and make sure those payments are being reported to the major credit bureaus.
If you’re looking to upgrade to a more attractive credit card option, keep your utilization ratio (total credit used divided by total credit available) at 30% or less. This component weighs heavily on your scores, and continually maxing out your cards won’t help you increase your credit score. It’s important to sign up for one of the free monitoring services so you can be sure no erroneous information is being reported.
The bottom line
Compared to seeking a mortgage or other secured loan programs, applying for a credit card is a fairly quick and uncomplicated process. Before you apply to a credit card, however, get an accurate picture of your credit score and research the card that meets your needs. There are numerous online services to keep you abreast of your creditworthiness, along with advice on how to improve it. Regardless of where you sit along the credit score spectrum, make on-time payments on all debt obligations and avoid carrying high balances on cards. If you do that successfully, you’ll grow your credit over time and progress towards financial success.
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- Eight Tips to Make Credit Cards Work For You, Not Against You
For rates and fees of The Platinum Card® from American Express, please click here.
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