It is easy to qualify for a credit card account, and the benefits are endless. Not only can you use your credit card to build a credit history, but you can also get discounts on some of the purchases through different features, benefits, and programs that come with credit cards.
Although it is easy to get a credit card, many people end up with the wrong one or cards they don’t need. Others apply for credit cards they don’t qualify for, denying their applications and hurting their credit scores. To get approved for a credit card, you must apply for the right one. Furthermore, your credit card application should include all the information the issuer seeks.
In this post, I will walk you through the essential steps to applying for a credit card and getting approved on your first application.
What is a credit card?
If you are familiar with a debit card, you will not have difficulty understanding a credit card. Unlike debit cards, which require you to deposit money into your bank account to use the card, you don’t need cash to use your credit card. A credit card is a physical card you get from a bank or other financial institution with limited credit you can spend on it. The limit on each credit card is called a credit limit.
When you apply for a new credit card account, the lender evaluates your creditworthiness and decides to approve or deny your application. Once approved, you will receive a credit card in your mail within 7 to 14 days. The credit limit is the maximum line of credit the card issuer extends to you. As you use your credit card, the available credit will go lower. Your credit utilization is the percentage of the money you spend compared to the total credit limit. Once the total limit on the card is spent, you must pay off some of your balances before you can use your card again.
Credit cards are a form of revolving credit accounts. Your account is renewed automatically when you use your credit card and pay off the limit. This allows you to use your credit card continuously and pay off your balances. After using your credit card for a while, the issuer can automatically increase your credit limit. You can also request a credit limit increase by submitting an online form or calling your card issuer.
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Why should you get a credit card?
Whether you are getting your first credit card or your 10th card, there are many positive aspects to having a credit card. The following are some of the benefits of using a credit card.
- Building credit history. A credit card might be your best shot if you are new to credit and want to build your credit history. With your first credit card, you will most likely qualify for a low credit limit on the card. This will allow you to build your credit without getting into too much debt.
- Credit cards come with many features and benefits. For example, rewards credit cards allow you to get discounts, points, and miles on qualifying purchases. You can also get a signup bonus, which varies from one credit card to another.
- A credit card can supplement your income. There are times when your income alone might not cover all your expenses. In this case, you might rely on credit cards to cover some of your monthly costs while figuring out how to turn your financial situation around.
- Credit cards can help you repair your credit and increase your credit score. Since each card has a credit limit, you can quickly lower your credit utilization ratio by getting a new credit card with a higher credit limit. Reducing your credit utilization might raise your credit score.
- A credit card can help you pay off other credit card debts. If you have higher balances on your credit cards with higher annual percentage rates (APR), you can get a 0% APR credit card and put all your expenses on this new card. By using this trick, you will stop using higher APR credit cards, reducing the interest you pay and making it easy to pay off your debts. Another way a credit card can also help you pay off your debt is through the balance transfer process.
How do you know if a credit card is right for you?
Before we go over the steps of applying for a credit card and getting approved, let’s find out if a credit card is right for you. Using a credit card means you are borrowing money to spend. So, before you apply for a credit card, you must ensure you are ready for the card and have a plan to pay off your balances. The following tips will help you evaluate whether you can use a credit card.
- You don’t spend extravagantly. People with bad money habits, such as excessive spending, tend to accumulate too much debt. A credit card is probably not a good choice if you spend more money than you make.
- You act responsibly when it comes to debt. If you pay your bills on time, avoid excessive borrowing, and respect the terms of your credit accounts, you are ready for a credit card.
- The card is needed for the right reason. Many people get credit cards as a way to finance their spending habits. They view credit cards as another source of free money to spend. If you have the same approach toward credit cards, you are not ready to get one. Credit cards are a form of debt, and only responsible users should use them.
- You are aware of how credit cards work. Millions of people struggle with credit card debts because they don’t understand how they work. You must learn the basics of credit cards and how they work before getting a credit card. The more you know about credit cards, the fewer mistakes you will make.
- You have some savings. It is easy to accumulate a lot of credit card debt. Unless you have some savings and an emergency fund, you might find it challenging to save money due to paying off your credit cards.
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Be aware of high interest rates and fees.
What makes credit cards risky is the high interest rates compounded daily and fees. Even with a credit card with competitive rewards, you will still pay fees, charges, and interest rates when applicable. For example, some credit cards come with annual fees. But others don’t. You must learn about these fees before you apply for your first credit card. Failure to do so can lead to long-term financial struggles due to hard-to-pay-off credit card debts.
The following list the most common credit card fees, interest, and charges.
- Balance transfer fees
- Cash advance APR
- Annual fees
- Actual APR on the card
- Returned payment fees, etc.
Before getting a credit card
Before you get a new credit card, you must also recognize that credit cards are a form of a loan. Every expense you put on your credit card must be paid off. The interest rate might also be applied if you carry balances to the next payment cycle. For example, if you had a $1,000 credit card balance and only paid $100, you would pay interest charges on that $900 you carried over.
Most credit cards also come with compounding interest that compounds daily. When interest on your loan is compounded, you get charged interest on the principal amount and the accrued interest. For this reason, you can quickly build up a lot of credit card debt.
If you never used a credit card before, you might need to learn how credit cards work. A good path most people take is to become an authorized user of a credit card account. This option is good for you if you know someone with an excellent credit score who can let you become a user of their account. You will get your card tied to the original account as an authorized user. The benefit of this move is that you will not be responsible for activities on the account. All responsibility for the account will fall to the account owner. To ensure the integrity of the account, you must pay off balances on your card on time and avoid any activities that can hurt the account.
Most card issuers report authorized users’ activities to major credit reporting agencies(Equifax, TransUnion, and Experian). In other words, your activities on the account will appear on your credit reports, which will help you build your credit history and increase your credit score. After obtaining the required credit history and acquiring the necessary knowledge, you can apply for the right credit card.
Related: What is an authorized user on a credit card?
How to apply for a credit card and get approved?
Now that you know a little about credit cards, it is time to learn how to get one.
In the following paragraphs, I will give you clever tips on applying for a credit card and getting approved on your first application.
Without further ado, let’s get started.
1. Know why you need a credit card
Many people get credit cards for different reasons. Some people apply for credit cards because they want to save money on their airline tickets. Others choose store cards to lower their grocery bills. What about you? Why do you need a credit card? Do you want to build a credit history? Knowing why you need a credit card will help you choose the right one.
2. Choose the right credit card
It is essential to recognize that having a credit card and having the right card are two different things. You need a credit card that helps you solve a particular problem. After knowing why you need a credit card, you will search for one that fulfills that purpose. For example, you must search for rewards credit cards to save money on gas and groceries. Under this category, you may choose a card with the highest cashback on gas and related expenses to maximize your savings.
On the other hand, if you want to save money on your airline tickets, you might still look into rewards credit cards. However, you will focus on mile credit cards, a subcategory of rewards credit cards. You can use miles to cover qualified travel-related expenses with your airline. Your choices are endless; the more you know why you need a card, the better.
If you are new to credit or have bad credit, consider the following options to increase the odds of getting a credit card.
- Try a secured credit card. Secured credit cards are designed for people new to credit or those with bad credit history. With a secured credit card, you will need a security deposit, which will help determine your credit card limit. The card issuer gets to keep your deposit when you cannot pay off your balances. Secured credit cards can help you build your credit history, a good foundation for getting regular and better credit cards.
- Student credit cards. Student credit cards are some of the best starter credit cards. You might easily qualify for a student credit card if you are in college or a young applicant. Student credit cards have lower credit limits, fewer features, and limited benefits. If you never had a credit card before, these types of credit accounts can help you build enough credit history and later apply for better cards.
- Become an unauthorized user. If you cannot qualify for a credit card due to having a thin credit file, become an authorized user of an established account. This trick will allow you to build your credit history faster without opening your credit account.
- Apply for a credit card that allows co-cosigners. Sometimes, you might not qualify for a credit card using your credit credentials alone. For example, you might need a co-signer if you have bad credit or are too young to qualify. A co-signer will vouch for you and take on the full responsibility of paying off the balance when you fail to make payments.
3. Get pre-qualified
Even if you are not getting your first credit card, it is possible that you will not qualify for all credit cards. Your eligibility for a credit card will depend on many factors, such as your latest credit score, income, DTI ratio, etc. Additionally, the card’s benefits, features, and rates will differ from one card issuer to another. For this reason, you need to get pre-qualified for the credit card and shop around for better rates.
So, check your eligibility, get pre-qualified by many card issuers, and compare rates before submitting a credit card application. When comparing credit cards, pay attention to APR, membership fees, benefits, rewards, and annual fees.
4. Fill out a credit card application
All loans and credit card accounts require that you complete the loan application. The fact that you have been pre-approved for the card is a great indication that you will more likely be approved for the card.
The fastest way to complete your credit card application is to do it online. Most card providers let you complete the whole process online. You can also visit your local bank or credit union to complete the application in person.
5. Submit the application and wait for the decision
After completing the application, submit it and wait for the final decision. While waiting for your credit card application decision, it is a good idea not to apply for other credit cards. This is because every credit card application you submit results in a hard inquiry on your credit reports. Each hard inquiry knocks off a few points from your credit score.
The best strategy to minimize hard inquiries on your credit reports is to apply for loans you qualify for. If you qualify for a particular credit card, submit your application and await the decision. On the other hand, if you do not qualify for the card, do not apply for it.
6. Get your credit card in the mail
After you have been approved for a credit card, your card issuer will make the card and mail it to you. It usually takes 7 to 14 days to receive your new card in the mail. It can also take longer for unique designs or shorter when you pay a fee for fast delivery.
Top 3 things to qualify for any credit card easily
While credit card requirements vary by card issuer, there are three things you can do to qualify for any credit card you want. Ensure that items listed as a, b, and c below are completed before you apply for a credit card or other forms of loans.
a. Have proof of income
As you use your credit cards, you will accumulate balances on the cards. These balances must be paid partially or in full every month to maintain a good credit rating. Credit card issuers require that you pay minimum monthly payments when you carry balances on your credit cards. To make these payments, you must have an income.
So, before you send in your credit card application, ensure you have proof of income. Your income also helps card issuers to determine your credit limit. Depending on the company, you might be required to provide pay stubs or tax returns. Whatever the case, be prepared to provide this information.
b. Lower your debt-to-income ratio (DTI ratio)
Lenders compare your current debt amount and income to estimate whether you can take on more loans. They calculate your debt-to-income ratio, which is your monthly debt payment divided by your gross income. Even if you don’t have credit card debts, you might have a lot of student loans, car loans, and expensive mortgages. In this case, you might struggle to qualify for a credit card. A higher DTI ratio shows that you already have too much debt and cannot afford to take on more credit. The higher your DTI ratio gets, the riskier you become, and the higher the chances you will get denied for a credit card.
Experts suggest maintaining a DTI ratio under 28%. The lower your DTI ratio, the better. Most card issuers will still approve your application for a DTI ratio as high as 36%. But, if your DTI ratio is too high, pay off some of your existing debts before applying for a credit card.
c. Increase your credit score
The lending industry relies on risk assessment strategies to offer loans. Your credit score reflects any activities on your credit accounts. So, a good credit score shows that you act responsibly regarding debt, which increases your approval rate and a chance for a lower interest rate. AÂ bad credit score, however, shows that you are not a responsible credit user and, therefore, cannot be trusted with credit cards.
Where to get your first credit card?
There are a ton of credit card issuers out there. Almost every business, small or large, offers credit cards. Although most businesses extend credit to their prospective customers, the best place to start when looking for a credit card is your current bank or credit union. This is because you have a history with your bank, which helps reinforce their trust in you.
You can also look into other established credit card providers such as Discover, CapitalOne, American Express, etc. Consider store credit cards if you want a credit card tied to a specific business. For example, you can apply for a Target credit card because you will be shopping there for a long time. It all depends on what you want to do with the card.
What do you need to open your first credit card account?
Credit card issuers need to verify your identity before they approve you for the card and mail it to you. So, you must provide your full name, mailing address, and date of birth. You might also need your social security number and a photo ID. Some of this information helps lenders to pull your credit reports and check your credit score.
Since you must have proof of income, the card issuer might require that you provide your pay stubs or tax return documents. Proof of income shows you can make monthly payments on your credit cards. In addition, income helps card issuers determine how much credit limit they can approve you for.
