A credit score plays an essential role in the process to apply for a credit card. Lenders and other entities use it to help determine creditworthiness for their cards, as well as for loans and even apartment rentals. This is because a credit score summarizes the potential risk an applicant poses in a financial agreement.
Where you fall on the scale, which ranges from 300 to 850, tells a credit card lender how likely you are to pay what you borrow. Think of it like a temperature gauge for your overall financial health, except that the higher your score is, the better off you are.
What Determines Your Credit Score?
Understanding the score needed to apply for a particular credit card is important, but first you need to know what goes into a credit score. This number is derived from information on your credit reports, which are generated by credit bureaus such as TransUnion, Equifax, and Experian. These bureaus consider a number of factors when generating your reports, based on information they receive from lenders you’ve already borrowed from.
Credit Score Factors
The following factors contribute the most weight to your overall credit score:
- Payment history – Your payment history outlines your consistency in making payments on time, and marks times when you’ve missed or made late payments. The more on-time payments made, the better you look to lenders.
- Current debt ratio – Also known as credit utilization, this refers to the total amount of debt you currently owe, compared to the size of your credit line. The closer you are to reaching your credit limit, the more lenders will question your ability to pay off your debt.
- Credit history length – Having a long history of borrowing and paying off credit and loans shows that you’re financially responsible and likely a trustworthy borrower.
- New credit – This refers to the number of times you’re tried to apply for a credit card or another line of credit in the last 24 months. It is generally good practice not to open several credit accounts within a short period, as doing so will make you seem like a riskier borrower.
- Credit mix – It’s not just credit card accounts that are taken into consideration when determining a credit score. Lenders like to see variety of account types, including mortgage loans, auto loans, retail accounts, and other instances of borrowing and repaying funds.
Not all of these factors have the same weight when it comes to calculating a credit score. Some, like payment history, impact your credit more than others. Moreover, each consumer likely has more than one credit score, since each bureau issues their own report and there are several different scoring models (namely, FICO and VantageScore). For a more detailed look into what goes into a credit score, check out our article on the credit report basics.
Does Applying for a Credit Card Hurt Your Credit Score?
Whenever you apply for a credit card (or a loan, for that matter), the lender will most likely run a credit check. This is also known as a credit inquiry, and there are two types: hard, and soft. Soft inquiries require less information, so they don’t hurt your credit score.
Hard inquiries, on the other hand, require a full look at your report. As a result, hard pulls stay on your credit report for up to 2 years, and each one knocks your score a few points. That’s why you don’t want to apply for too many credit lines within a short period – those hard inquiries can add up quickly.
Plus, when a lender sees you’ve applied for several lines of credit back to back, they are more likely to label you a high-risk applicant. This type of activity suggests that you’re in need of credit because you’re short on cash – which in turn suggests you may have trouble making payments.
What Credit Score Do You Need to Apply for a Credit Card?
Though credit scores overall vary from 300 to 850, this range is further divided into several categories. The labels that accompany these categories make it easier for lenders to advertise the type of applicants they’re looking for on particular offer.
In turn, applicants who know which category they fall into can use that label to quickly find offers they qualify for. This can help minimize the risk of undergoing multiple card inquiries. For example, applicants in the “fair credit” category would want to avoid cards in the “excellent credit” category, as they’re unlikely to get approved.
Where Do You Fall On the Credit Score Range?
The following list outlines the four basic credit score categories in detail:
- Excellent Credit – Excellent credit scores typically hit 740 and higher. Consumers with excellent scores appear to offer the lowest risk to lenders. They tend to have a reasonable likelihood of approval for any credit card, especially those offering big cash back and travel rewards. They also qualify for the lowest interest rates.
- Good Credit – A good credit score typically falls between scores of 670 and 739. If someone has “good” credit, they can still get approved for a wide range of credit cards but might not get the best rates.
- Fair Credit – Fair credit scores typically range between 580 and 669. Falling into this range suggests a moderate risk to lenders. As a result, those who apply for a credit card with a fair credit score will find their approval chances for top-tier rewards cards lower. However, there are plenty of card offers aimed at those looking to build credit as well.
- Poor Credit – Poor credit scores fall between 300 and 579. Those who need to apply for a credit card with poor credit will often find they face the highest interest rates. Like cards for fair credit, however, it’s easy to find credit cards designed to rebuild a credit score. Some don’t even require a credit check at all.
Can You Apply for a Credit Card with No Credit?
As pointed out in the previous section, certain instances allow lenders to approve you for a credit card with no credit score at all. Otherwise, it would be nearly impossible to build credit from scratch. The types of credit cards available to applicants tend to fall into two categories: student credit cards and secured credit cards.
Though they function much the same as other credit cards, student cards are designed with young consumers in mind. These applicants tend to have very little to no credit since they’re still in school, so the credit and income requirements tend to be less strict. This also means
Meanwhile, secured credit cards help limit the risk to lenders since they require a security deposit. This type of credit card allows cardholders to borrow within the confines of their deposit, until their credit is solid enough to apply for an unsecured credit card.