People apply for credit cards every day, but it’s by no means a casual decision. Between affecting your credit to potentially sinking you in debt, there are pitfalls that you’ll want to be prepared to avoid before you make the move to apply. Other considerations are in order, such as how appealing you’ll look to an issuer and how you should manage your budget before and after receiving additional buying power. Read on to learn how you should equip yourself as intelligently as possible.
Understand How Credit Cards and Credit in General Work
This should go without saying, but you need to have at least a basic familiarity of how to use a credit card. It may sound silly, but it’s common for people to apply for one without knowing about paying down a balance or being charged interest. If you need a refresher – or if you’re just starting out – head over to our Credit Cards 101 guide to be aware of the fundamentals.
Check Your Finances
This is the most important factor you should consider before applying for a credit card. If you’re in a financial hard spot like owning a lot of debt or having trouble making payments, you won’t be in a favorable position to apply for a new line of credit. Besides, lenders will look at your credit history and if they don’t like what they see, they will deny your application. Therefore, take the following into account during your planning stage:
- Reduce your debt as much as possible. The less you owe to other creditors or lenders, the more flexibility you’ll have with a new credit line. If you have several accounts, try to have their balances as close to $0 as possible. It’s not a bad thing to have numerous lines of credit – it can actually be beneficial – as long as they haven’t been opened within a short timespan or are at risk of becoming delinquent.
- Have or develop a budget. Chances are you already have other recurring expenses like utility bills, school tuition, or groceries. Make a list of what you regularly spend your money on and what you have left over. Doing so will give you a clear picture of how you can apply that extra money to future credit card payments.
- Evaluate your spending habits. What do you normally spend your funds on other than necessary costs? Are you a frugal shopper or do you have expensive taste? It’s important to think about how you spend your money, as well as how much you spend, before you gain access to more buying freedom.
- Have a steady source of income. The saying goes, “You have to spend money to make money”, but the opposite is also true. If you’re in between jobs or living paycheck to paycheck, it may not be the right time to apply for a credit card.
Check Your Credit Report and Credit Score
After you’ve made sure you’re financially stable enough to live comfortably with a new credit card, you should check your credit history. Credit card issuers will thoroughly inspect your credit report and weigh the decision of your application on your credit score, so being familiar with both beforehand will help you know whether it’s the right time to apply for a card or not. Your credit report is prepared by three different reporting agencies: Experian, Equifax, and TransUnion. Federal law allows you to obtain one free report from each company per year, and you can do so at AnnualCreditReport.com. Thoroughly inspect your report and review any open accounts you may have, how much you owe on each, and be especially aware of any adverse actions listed. While you’re at it, you should also look out for any inaccurate information. If you spot any inaccuracies in your credit report, you can dispute them. Your credit score is not provided in your credit report, but there are ways of viewing it. The FICO Score is the most widely used metric among issuers, so you can purchase access to yours through the company’s site. You should also check if you have existing credit accounts that provide your FICO score for free, as it’s a common add-on nowadays. Once you’ve gone through your credit history and score, you’ll feel more confident about your chances of getting approved for a credit card and how you’ll be able to manage it.
Know What You’re Going to Use Your Card For
Asides from casual shopping, you might have a specific reason for getting a credit card. Maybe you’re a small business owner who needs a line of credit to cover regular expenses, or perhaps you’re eyeing a vacation that you can pay for with a new travel card. There’s nothing wrong with having a card to buy something that you want occasionally, but it helps to have a purpose for each of your credit cards.
Know Which Card You’re Applying For
Tying into the above advice, you’ll make your life easier by already having a credit card in mind that you’d like to apply for. If you have a general set of attributes that you’re looking for but don’t have a specific card picked out, you can always browse and compare through our vast selection of cards from several issuers.
See if You’re Prequalified
Being prequalified for a credit card increases your chances of being approved because it essentially informs you that you fall into the required credit score range for a card. If you’re a member of a bank you may receive targeted offers either through your online account or via mail. Alternatively, you can always go to an issuer’s site and use its checking tools if you’re looking for a specific card. Being prequalified won’t hurt your credit score, as issuers typically only do a soft pull to vet you, but if you go through with the application the issuer will proceed to do a hard pull. With a prequalification in place, however, you’ll at least know that you have a high likelihood of being approved, therefore the ensuing hard pull won’t be “wasted”, so to speak.
Know What the Credit Card Application Asks For
You should be able to come up with the information that a credit card application requires as you see it, though it won’t hurt to know what you’ll be asked for in advance. You’ll need to provide your name, address, proof of citizenship or residence, phone number, date of birth, social security number, employment status, and income and financial assets information. These requirements may vary from issuer to issuer, but you can expect to be asked for most if not all of them on a standard application.
Don’t Apply for Too Many Credit Cards at a Time
Once you’ve gone through all your information and confirmed that you’re in good standing to apply for a credit card, the last piece of advice is to use your applying power wisely. If you apply for, say, two credit cards within a short timespan you may be approved for them, but if you increase that number it’ll reflect badly on your credit report. Applying for too many cards consecutively will be interpreted by card issuers as having a desperate need for money, and your ability to pay back borrowed funds won’t look favorable in their eyes. Therefore it’s important to know which card you want to apply for, why, and how you’ll use it. Doing so can make you realize that you won’t need more than one or two credit cards for your needs and wants.