A credit card can be a very powerful financial tool, but improper use can also bring you to the brink of financial disaster.
It’s the reason many people now stay away from credit cards, while others still use them, but in a more responsible way.
If you do need one, let’s see how you can apply for a credit card and get approved:
Make sure you really need it
For many people using a credit card is mandatory, so that they can build enough credit history and get a great credit score. Others just use them because they’re readily available, even if they don’t quite need them.
So, before you do apply for a credit card, make sure it’s something you need. Otherwise, stick to debit cards and cash, you’ll be just fine.
Know your credit score
The better your credit score, the better deals you’ll get, whether you’re looking to get a mortgage, a personal loan or a credit card.
This is how credit scores are classified (some lenders might have slightly different formulas, but overall this is what you’re looking at):
- 300-629: Bad credit
- 630-689: Average credit
- 690-719: Good credit
- 720 and up: Excellent credit
If you have a bad credit score, maybe it’s a better idea to keep your balances low, don’t miss payments or, even better, get out of debt as much as possible.
The moment your credit score improves, you’ll get a better deal.
Shop for the best credit card deals
Don’t just take on the first offer you get. It’s wise to get the information from various banks and then slowly ‘comb’ through the numbers.
You’ll be amazed to see how many bad deals you’re being offered, but also find some better ones for you.
Remember, haste will cost you money.
Read the fine print
Few weeks ago I visited a local bank to make some changes in one of my accounts. It’s been inactive for a while (I prefer to pay cash most of the time or use another bank account) and, on top of it, I have a different name now (got married in the meantime).
While the lady at the office was filling in my new data, I took a glance at a really cool credit card offer, with miles and all sorts of rewards.
Of course, just looking at the advert almost made me take one into account, since we do love to travel and, who doesn’t like some rewards. Right?
And then I read the (literally) fine print: the entire cost of the loan would have been 250%. So, I’d ‘borrow’ 100 bucks for instance and, with all their fees and interest I’d have to pay back 250. But hey, I might get some free miles (worth 10 bucks, probably).
OK, maybe your bank is giving you a better deal, but make sure you have all the numbers.
If they advertise very small monthly payments or small interest rates, it’s great, but calculate how much you’ll eventually owe.
Banks have a tendency to promote the ‘soft’ side of your credit, while burning your wallet with huge fees or anything that will allow them to earn as much as possible from this deal.
Include all your income
Income is another value that’s important for the card issuer to know how much credit you can take. They’ll calculate your debt-to-income ratio, which helps them determine of you will be able to make the payments.
To lower your debt-to-income ratio you’ll need to either increase your income or decrease your debt.
If you have a side gig (freelancing for instance), make sure you include this income in your application.
Do not lie in your application (claiming you make more money than you actually do), you’ll be charged with credit card fraud, not to mention you won’t be able to afford such big payments anyway.
Get someone to cosign
In some cases you’ll need a parent to cosign, especially if it’s your first credit card.
Beware though, any financial mistakes you’ll make will also affect the cosigner’s credit history. Make sure you’re on time with your payments and and abide by all the terms you have agreed upon when signing up.
Don’t give up
If you are not accepted for the first time, shop around some more.
Work on your credit score, pay off some of your debt or secure an additional income and you’ll soon qualify for a good credit card deal.