You’ve probably heard by now that a credit card can help your credit, so long as you do all the right things with it. What you may not realize is that the process of doing the right things starts before you ever get your plastic.
Each credit card application typically generates a hard inquiry on your credit report — which can hurt your scores, particularly when they’re en masse. So you’ll want to avoid simply applying for a new card (or cards) willy-nilly.
Here are some steps to take to ensure you have a good game plan when applying for a credit card.
1. Consider Your Spending Habits
And what you need the card for, because both factor into which credit card is right for you. There are lots of different categories of credit cards out there, each one suited to a different need. Carry a balance every now and then? You’ll probably want to look into low-interest credit cards. Need to pay down a high-interest credit card balance? Then a balance-transfer credit card might be your best bet.
And if you’re not prone to carrying a balance, you may want to reap the rewards. But, even then, you’ve got some thinking to do, because, depending on your spending habits, one rewards credit card may be more lucrative then another. If you travel for business a lot, a hotel or airline credit card may be the best choice. If you spend a lot on food, you might want to get a cash back card that offers bonus points back at restaurants, grocery stores or wholesale clubs. And so on and so forth. In any event, you’ll want to narrow down your choices.
2. Determine Whether You Can Qualify
Because this, too, will effectively influence what card you ultimately apply for. Credit card approvals are generally governed by two major factors: your income and your credit score. And, while it can hard to pin down an issuer’s specific underwriting requirements, you can get a general sense for what it takes to get approved for a particular card by doing a little a research online. When it doubt, remember that cards with the best terms and conditions typically require a good credit score. So, if a card’s got a really low interest rate or super-premium rewards program, you can safely assume that, at the very least, your credit will need to be in tip-top shape.
That’s why it’s a good idea to check your credit before you fill out any applications. You’ll want to know where you stand so you don’t wind up incurring a hard inquiry for naught. (You can view two of your credit scores for free each month on Credit.com.) You’ll also want to spot and dispute any errors on your credit reports before you apply, so you don’t get rejected through no fault of your own.
3. Read the Fine Print
Once you’ve narrowed down your choices and feel like you’ve found the right one for you, be sure to read the terms and conditions of that card carefully. You’ll want to make sure you understand all the fees that you could possibly incur, all the interest rates that may apply and whether there are any expiration dates or caps on rewards you should know about, among other things. Bottom line: You want to know all the ins and the outs of your new plastic before you apply for it.
4. Be Honest
When you fill out your credit card application, refrain from inflating your income or fudging the truth regarding any other information the issuer may request. Lying on a credit card application, after all, is illegal. (It’s considered fraud.) And, though rare, there are situations where consumers have been prosecuted for doing so. Beyond that, income plays a big role in determining your credit limits — and there are potential consequences to winding up with a credit limit that’s out of your pay grade. Undisciplined spenders could easily run up a balance they can’t afford.
5. If You’re Rejected, Find Out Why
If you feel strongly about getting a certain card that you weren’t approved to have, you can call the issuer directly and ask them to reconsider your application. But, more importantly, you should pay attention to why you were denied in the first place. By law, the lender must provide a notice with the specific reasons why you were turned down (or charged more) for credit. The rejection letter will list three or four reasons why you didn’t get approved. And those “reason codes” are often generated from the credit score used in the transaction, so they can offer valuable insight into your credit — and what you can do to possibly avoid future rejections.
6. Remember, It’s OK to Wait
If you discover your credit isn’t up to snuff and/or you’ve suffered a rejection or two, it might be a good idea to wait on getting that plastic and work on improving your score instead. You can generally do so by paying down any existing credit card balances, disputing errors on your credit report and (cough, cough) limiting new credit inquiries until your score rebounds. And you can build good credit in the long term by making all your loan payments on time, keeping debt levels low and adding a mix of credit accounts only as your score and wallet can afford them.
Image: Deborah Cheramie