Thinking of applying for a credit but unsure what the application process might involve? Find out all about it here.
Credit cards are ubiquitous in everyday society. Most people seem to have one, or several, and we are constantly fed adverts and marketing information about them and all the benefits they can offer us.
However, credit cards do offer some advantages and have a lot of unique benefits. They can be used to finance significant purchases, they offer fallback cash in the case of an emergency, and they have more fraud protection measures available compared to traditional payments methods. What’s more, using a credit card can help you build up your credit score, which is vital if you’re intending to apply for a mortgage in the future for example.
However, not everyone will be eligible for a credit card. You will have to meet a set of standards and criteria before you are offered one, and your financial situation will determine the terms of the credit card you are offered. If you’re thinking of applying for a credit card and you’re not sure what to expect, we’ve got you covered. Keep reading to find out more.
How does a Credit Card work?
Before we get into the process and procedures behind credit card applications, it’s important to establish what exactly a credit card is and how they work.
A credit card is a credit account that offers a user what is known as a revolving line of credit, which means they are able to borrow from the account up to a pre-set limit, pay the debt off and then borrow from the same account again. This process can be repeated as many times as the user wants within the set term period of the agreement, as long as they are paying back the amounts they borrow.
Generally, credit cards are offered by banks or other financial institutions and run on one of several major payment networks. Interest rates will vary depending on who issued your credit card and can change depending on current financial or market conditions.
Typically, people use credit cards to purchase items like clothes or food, while they can also be used for emergency cash, vital in these times of economic instability and inflation, or for debt transfers. Users will receive monthly statements from the credit card issuer, detailing what they are due to pay and the date it has to be paid by.
Credit cards have a number of uses and are generally recommended for people who are wanting to improve their credit score. How do you apply for one and what does the application process entail? Let’s find out.
Applying for a Credit Card
These days, applying for a credit card is a relatively quick and straightforward process. Most banks will offer an online application process, with the results of your application available often in a matter of minutes.
First, you will be asked for basic personal details, such as your name, age, address, and how long you have lived there. You will also need to provide employment information and give details on your income.
After you send your application off your credit history will be checked. This is a standard procedure that banks and other institutions use often. The use of credit checks is commonplace and also can extend to a line of credit like a home equity line of credit.
Your credit score will be checked with one of three bureaus. This check is what’s known as a hard inquiry, which will remain on your credit report whether you are approved for the credit card or not.
Occasionally, you may be asked to provide additional information, but usually you will receive the results of your application straightaway. If you have been approved, you will be notified, and your credit card will be posted to you. However, if your credit check or personal details didn’t meet the required standards, your application may be denied.
What Happens if You are Denied?
Being denied a credit card can come as a bit of a shock, especially if you were under the impression that your credit score was healthy and above board.
If your application is rejected, the credit card issuer will notify you with an adverse action letter detailing the reasons behind their decision. This is a legal requirement stipulated by the Equal Credit Opportunity Act and the Fair Credit Reporting Act, it is designed to give you an insight into why exactly you were denied a credit card.
There can be a number of reasons as to why an issuer might decide not to offer an applicant a credit card. These include having too many debts, a credit score that is too low or that has negative activity, or inadequate regular income.
While being denied for a credit card shouldn’t negatively impact your credit score directly, the hard inquiry from the credit check can. It’s worth only applying for a credit card if you are confident that you will be approved, and avoid applying for several different cards at one time.
How to Improve your Chances
Before you apply for a credit card, you should be aware of some of the steps and measures you can take to improve your chances of your application being approved.
There are services available that let you view your credit report without affecting it. Doing so can give you an insight into the health of your credit history, from which you can take action to improve it. Ensuring you are paying bills on time and reducing your debt can help improve your credit score.
Picking the right card to apply for is key to increasing your chances of approval. Read each card's requirements and terms to pick the one that suits you best.
Conclusion
Applying for a credit card can be confusing, but don’t let the options overwhelm you. Follow this guide and you’ll know what to expect from the application process and ensure that your credit card application is approved.