Thinking of applying for a card? The odds of having your application approved depend on the issuer, the card and your credit score
While the answer depends largely on your credit score, it gets a bit more complicated, because approval rates also vary by type of card and by individual card issuers’ appetite for new customers. Whether you are an established credit card holder or just starting out, we’re going to walk you through how to determine if that new credit card you are eyeing can actually be yours.
For the seasoned cardholder: If you already have a card or two, know your credit score and what’s on your credit report, good job. Here’s the most important thing you need to know before applying: The better your credit score, the better your chances of getting approved for a new line of credit.
Know your score, know your odds
Consumers who hold “prime” FICO credit scores (660-719) have a 58.7 percent approval rate for general purpose credit cards, according to the Consumer Financial Protection Bureau’s Credit Card Practices Inquiry survey.
It’s even better for tthose who have achieved “superprime” FICO scores (greater than 720) have an 85.5 percent chance of approval.
Overall, consumers have average approval rate of 39.1 percent, but since that encompasses all scores, it’s much more important to focus on where your score lands on the scale and what that represents in terms of your credit health and approval odds.
If your odds look good, apply. If not, see what you can do to raise your score before filing that credit card application.
Remember, good credit can also translate into lower interests rates and higher spending limits so if you find your score to be “subprime” (659 or lower), consider waiting to apply until you improve your credit to not only increase your approval odds but also get the best terms. Subprime consumers were approved at only a 17.1 percent rate in the CFPB survey.
Even if you have great credit, you can still be turned down. Don’t be shocked or insulted. If that happens, to paraphrase the dating cliche, it’s not you, it’s them. Card issuers turn on and turn off offers all the time, and expand or trim their portfolio of cardholders to fit their needs.
For the credit newbie: a deeper dive into the details
If you’re new to credit, or just need a refresher, use the following steps to see yourself from a credit lenders perspective and translate that knowledge into a successful credit application. :
1. Check your credit report and score
Understanding your credit report is the key to understanding how lenders will judge your credit worthiness, according to Steven Axtell, a certified financial professional with credit counseling agency American Financial Solutions.
“People should review all information in their reports,” he said. “Are there judgments or collection accounts showing? Repossessions or mortgage foreclosures? Is the consumer carrying more than 25-30 percent of their credit limit as a balance?”
Your credit report is the basis for your credit score, which is the most influential factor in a credit card approval process, so examining the report will show you what’s driving your score.
If something doesn’t look right on your report, file a dispute right away. Credit report errors and fraudulent information may negatively impact your credit score and lower your chances for credit card application approval.
Once understand your report, purchase your FICO credit score, as this standard score is used in 90 percent of U.S. lending decisions and a good measure of your credit approval odds, according to MyFico.com.
Your FICO score will fall within a 300-850 range. The higher the number, the better your credit and the more likely you are to be approved for a new line of credit.
2. Understand income requirements
Credit card applicants with a higher annual income or more assets tend to be looked more favorably upon by lenders. Why? Because they are more capable of repaying whatever credit they spend.
However, you don’t have to make a six-figure income to get approved for a credit card, you just have to prove you can reasonably afford it.
The Consumer Financial Protection Bureau, as instructed by the 2009 Credit Card Accountability Responsibility Disclosure Act, issued a regulation in requires that lenders consider the applicant’s ability to make the required payments. When you submit your credit card application, your income will be weighed against existing debts and other financial obligations to help determine if you can handle another potential source of debt.
This qualifying factor may be especially relevant for young adults, as the CARD Act also requires that credit applicants under 21 have co-signers, unless they can prove that they have a high enough income or to justify a line of credit.
So, regardless of your age, if you are not able to prove that you have some type of income that could be used to pay off any accumulated credit card debt, you may want to pause before submitting your credit card application and wait until you are more financially prepared.
3. Pick an appropriate target
You have a better chance of getting approved for a credit card that fits your credit profile and financial situation, so research the cards before you apply.
“For example, find something that has a credit score acceptance range that fits your score,” said Apprisen credit counseling spokeswoman Jana Castanon. “The more knowledge you can get upfront, the better decisions you are going to make in the end.”
Understanding who you are as a consumer will also help you select the right card. If you have a low credit score or are a student, focus on the credit cards that cater to those consumer groups for greater odds of approval.
“The bottom line is that if the consumer applies for the right card, he or she stands a greater likelihood of approval,” said Gail Cunningham, Vice President of Public Relations for the National Foundation for Credit Counseling.
Once you’ve found the right card, consider applying for that card with a lender you trust…and trusts you.
“Any lender will tell you that it is all about the relationship building,” Castanon said. “If you have a good relationship with a certain financial institution, like you’ve established auto loan and maintained non-overdrawn accounts with them, they will want to maintain that good relationship and not lose you.”
If you’ve never had a credit card before, go to the bank that holds your checking account and meet with a banker. That previous connection alone may help give them the confidence they need to give you a line of credit and even open doors to lower interest rates or fees if you are approved.
By this point you’ve done all the research and estimating you can. It’s time to fill out and submit that credit card application.
And for now, just that one.
Every time you apply for a new line of credit the issuing financial institutions does what is called a “hard inquiry” for your credit information. To many credit applications in a short amount of time can be a red flag to lenders, according to Axtell.
“If someone has applied for more than two credit cards in the last 12 months, it may look riskier to the lender and cause their credit score to decrease,” he said. “One client of mine was trying so hard to establish credit that he applied for 14 accounts in less than three months, not understanding that this was causing serious harm to his creditworthiness.”
Again, you can determine if this type of scenario is working against you by reviewing your credit score and report. If you find that recent credit inquiries have taken a toll on your credit score, consider waiting a couple of months before applying for another card to increase your likelihood for approval.
No luck? Don’t give up
If you’ve gone through the steps and believe you are not likely to be approved for a new credit card, or have already been denied, focus on strengthening your current credit profile. While it may be tempting to just apply for a different card, that won’t help you in the long run.
“It would be best to work on improving the current situation by paying down balances and resolving negative items on your report rather than applying for more credit,” Axtell said.
You can do this on your own or with help from professionals.
“A lot of financial institutions have credit-building products that can be a good tool to help you get started,” Castanon said. Talk to your private bank or find a financial counselor through associations such as the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies to learn about your options.
Building good credit takes time, so don’t be discouraged by short-term obstacles. Consider all influencing factors and stay on top of your credit score and report. You’ll be holding a new card in no time.