Things to Know Before Applying For a Credit Card

It is true that having a good payment history on a credit card is a key component of building a consumer credit score. Credit bureaus love a good mix of accounts, including unsecured credit cards and installment loans.

If you do not currently have a credit card, then you might want to consider applying for a card and building a deeper payment history prior to making a major purchase on credit. Building credit can reduce the cost of interest for vehicle or home purchases.

Pre-Approved Offers

A pre-approved offer is not a guarantee that you will be approved. You could still be denied if your stated income does not satisfy the income requirements established by the card issuer. In addition, if your credit score has dropped recently, you could also still be denied.

Still, a pre-approved offer is more likely to be approved than an unsolicited application. Credit card issuers buy lists of potential customers from the credit bureaus. If you received a pre-approved application, your credit met the initial credit requirements of the card issuer for that particular offer.

When a card issuer receives your application, they then conduct a new credit check to see if you continue to meet their requirements. Your credit score will likely be within a few points of what it was if nothing extraordinary has happened to your credit in the meantime.

A simple late payment or even going over the credit limit on another credit account could cause your credit score to drop by as many as 50 points. Correcting the problem will bring your score back up, but not to the original level.

Therefore, you should evaluate whether now is the time to even apply for a card. Any recent negative activity on your credit report could jeopardize the approval of a new application.

Inquiries

Inquiries may also prevent approval. Each time that you apply for a line of credit, an inquiry is recorded on your credit report.

If you are denied a credit application, understand that your credit score will have dropped anywhere from 1 to 5 points. Applying for another card would be ill-advised at this point, since you would have an even lower likelihood of being approved for that account.

Multiple applications in a short period of time can cause your credit score to drop to a point that makes approvals unlikely. Credit card issuers get nervous if they believe you are trying to apply for substantial credit in a short period of time.

If you believe you could benefit from a new account and expect to be approved, then choose wisely. Some credit cards have much better terms than others. Most importantly, once you have opened a new account, take care of it. Maintaining your credit accounts is essential for building a solid credit history.