When it comes to qualifying for new credit cards, there isn’t a foolproof way to know if you’ll be approved beforehand. That said, because your approval is based on your creditworthiness, among other factors like your income, employment status and more, there are a few things you can do before you apply to get a better idea of your credit standing. To help, we’ve detailed a few things you should know before you apply for a new credit card.
Know where your credit stands
Your credit reports and credit scores are two essential parts of your financial health, so it’s important that you’re familiar with both of these things before you apply for a credit card. If you don’t already know, your credit reports are generated by the three major credit bureaus — TransUnion, Experian and Equifax — then the information from your credit reports makes up your credit scores. Because not all lines of credit report to all three credit bureaus (for example, a credit card may only report to Equifax and TransUnion), it’s vital that you check all three of your credit reports to get an accurate idea of where your credit stands — all three of your credit reports and scores will not be the same. You can check all three of your credit reports for free once a year using AnnualCreditReport.com, but checking your credit scores through the site will cost you a small fee. If you’ve checked your credit reports within the last 12 months or would like a free alternative to check your credit scores, you may want to consider a credit monitoring service. A number of these services offer free trials that allow you to test the service prior to making a financial commitment. After the free trial is up, you can opt to either cancel the service or keep it if you wish (note that you’ll have to pay a monthly fee for the membership), which may be ideal if you wish to keep tabs on your credit reports and scores year-round.
When you check your credit reports, you’ll want to ensure all the information is correct, as errors on your credit reports could have a negative impact on your credit scores and overall credit health. Although you may not be aware of it, credit report errors are more common than you think, with 20% of consumers reporting errors on their reports, according to the FTC. If you do find an error on your credit reports, the good news is that you can dispute it and have the error removed either by contacting the reporting bureau on your own and filing a dispute claim, or by using a credit repair service to contact the reporting agency on your behalf. It should be noted that you’ll want to continue to check your credit reports after the errors have been removed. By checking your credit reports regularly, you’ll always be in the know about what information is on your credit reports, which is vital as this information helps determine your credit scores.
Know what factors make up your credit scores
While checking your credit scores is a good first step, it does nothing if you don’t know how your credit scores are calculated. A credit score is a three-digit number, ranging anywhere from 300 to 850 (at least on the FICO scale), that indicates whether you have good credit or bad credit. A credit score of 750 or higher, for example, is deemed as excellent credit, whereas score of 700 or higher is considered good and 670 or higher is average. But how exactly is this number calculated? There are a number of factors that go into it, and although every lender has its own credit scoring model that it uses, FICO claims to be the one that 90% of lenders use.
The FICO credit score takes five different areas into account to calculate your credit scores, the biggest of which is payment history, making up 35% of your score — this is why it’s so important that you pay your bills on time every month. The other four factors are: amounts owed (30%), length of credit history (15%), new credit (10%) and types of credit (10%), such as credit cards, student loans, car loans and home mortgages. As we previously mentioned, you can check your credit scores through AnnualCreditReport.com for a small fee or sign up for a credit monitoring services that provides you with both your credit reports and credit scores at signup and continues to track them for as long as you’re a member.
Know what card you may qualify for
On top of being in the know with your credit reports and scores, you’ll want to make sure you’re applying for the correct card. Although it may seem obvious, you should generally only apply for credit cards that you qualify for, as you’ll have a better chance of getting approved. For example, if you have average credit, you likely won’t get approved for a card that requires excellent credit. As such, it’s best you skip cards that require excellent or good credit until your credit standing improves. Fortunately, there’s a credit card out there for everyone, no matter what your credit type. Whether you have excellent credit, good credit, average credit or bad credit, we’ve detailed the best cards for every credit type.
Best for excellent credit: Blue Cash Preferred Card from American Express
If you have excellent credit and you’re looking for a credit card that offers great cash back rewards, the Blue Cash Preferred Card from American Express (a NextAdvisor advertiser) is for you. This cards earns 6% cash back at supermarkets (on up to $6,000/year, then 1% after that), 3% cash back at gas stations and select departments stores as well as 1% cash back on all other purchases. American Express also has a limited-time offer that will earn cardholders 10% cash back at U.S. restaurants for the first 6 months of card membership (up to $200 back, then it’s 1%). Note that you must apply by May 3, 2017 to get this limited-time offer. Plus, if you spend $1,000 in the first 3 months, you’ll earn a $150 bonus! Although the Blue Cash Preferred Card from American Express does have a $95 annual fee, cardholders will enjoy a 12-month 0% intro APR on purchases and balance transfers (with a 3% balance transfer fee). If you’d prefer a card with no annual fee that offers similar rewards, you may want to check out its sister card, the Blue Cash Everyday Card from American Express.
Best for good credit: Chase Freedom – $150 Bonus
If you don’t have excellent credit, but still have what’s considered good credit (somewhere in the 700 range), Chase Freedom – $150 Bonus is a great cash back rewards card to consider. With this card, you’ll earn 5% cash back in rotating categories (on up to $1,500 in combined purchases each quarter) plus 1% cash back on everything else. It’s important to note that you’ll need to sign up for the rotating categories each quarter to receive the 5% cash back, but it’s not hard to do, as Chase sends friendly reminders via email or text. Cardholders won’t pay an annual fee with this card, and as an added bonus, you can earn an additional $150 when you spend $500 in the first 3 months from account opening. Chase Freedom also features a generous 15-month 0% intro APR on purchases and balance transfers (with a 5% balance transfer fee). It should be noted that if you’d prefer a card that offers the same intro bonus, has no annual fee and earns a flat cash back rate on all purchases, you’ll want to take a look at Chase Freedom Unlimited, which is also available to those with good credit.
Best for average credit: Discover it – Cashback Match
Discover it – Cashback Match is a great card for those with average to excellent credit (usually a credit score of 670 or above) who are looking for a top-notch cash back credit card. In fact, this card has benefits usually reserved for those with great credit and it’s also one of our top-rated cards for those with excellent credit. This card earns 5% cash back in categories that rotate on a quarterly basis (on up to $1,500 in combined purchases each quarter, then 1% after that) as well as 1% cash back on all other purchases. But the cash back rewards don’t stop there, as Discover will match all the cash back you’ve earned at the end of your first year. This means if you’ve earned $300 cash back in your first year as a cardholder, Discover will match that and give you a total of $600 back! There is no annual fee associated with this card, and cardholders can also look forward to a 14-month 0% intro APR on purchases and balance transfers (with a 3% balance transfer fee). Those with less-than-perfect credit who want to earn travel rewards and double those rewards at the end of their first year of card membership will want to consider the Discover it Miles – Unlimited 1.5X Rewards Card.
Best for bad credit: Discover it Secured Card – No Annual Fee
Although you may think that you don’t qualify for any credit cards with bad credit, secured credit cards are designed to help people bad credit rebuild their credit, and they’re also good options for people with no credit to establish credit history. That’s because most of these cards usually report to all three bureaus, which means with responsible use, you can build a positive credit history rather quickly. The Discover it Secured Card – No Annual Fee is one of the best options, as it has no annual fee, reports to all three credit bureaus every month and earns you cash back rewards. With this card, you’ll earn 2% cash back on purchases at restaurants and gas stations (on up to $1,000 in combined purchases each quarter, then it’s 1%) plus 1% cash back on everything else. This card also features Discover’s match feature, which means Discover will match all of the cash back you’ve earn in the first year as a card member — turning $200 into $400! Your credit limit is determined by your security deposit, which can range from $200 to $2,500. If you continue to use your card responsibly, you’ll have the opportunity to get your security deposit back at the end of your first year.
Visit our credit card reviews to learn more about the cards detailed in this post and find the best credit card for your credit and needs.
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