Whether you’re applying for your first credit card or your tenth, there are key factors you should always consider. These include things like your credit score, income, and what you want out of a credit card.
Your Creditworthiness
The first thing to consider when applying for a credit card is your creditworthiness. Creditworthiness is a lender’s judgment on your ability to pay back money that you borrow. The better you rank, the wider range of credit cards you’ll be able to get.
As you can imagine, your credit score plays a major factor in determining your creditworthiness. So, it’s important to know your most current score when applying for a new card. You can find out your credit score in a number of ways, including:
- Free tools like Credit Karma
- Your credit card statement (on certain credit cards)
- Your bank’s mobile app
- For a fee from the credit bureaus
You have multiple credit scores, and each can vary slightly. Knowing a general range of your credit scores is ideal to figure out how your credit ranks (poor, fair, good, or excellent).
Learn More: 5 Quick Fixes to Improve Your Credit Score
Your credit score isn’t the only thing lenders look at when determining your creditworthiness. Another important factor is your income, more specifically your debt-to-income (DTI) ratio. How much debt you have compared to how much you earn reveals how much more debt you can reasonably take on. Having a low DTI ratio increases your likelihood of getting approved for a credit card, and makes it easier to get a credit limit increase.
Creditors may also consider your assets when you apply for a credit card. If you have assets such as a savings or investment account, this is attractive to creditors. It demonstrates you have money you can liquidate in the event you’re unable to pay your bill with your regular income.
What to Look for in a Credit Card
Regular interest rate. Although many credit cards come with introductory interest rates as low as 0%, it’s important to know what the regular interest rate on the credit card will be once the introductory period is over. Introductory periods usually last between 6 and 12 months. After that, you could be stuck with an interest rate of up to 20% if you’re not careful! Having a credit card with a low interest rate (something like 13%) can save you a lot of money in the event you’re unable to pay your balance in full.
Fees. Common fees to look for include: annual fees, balance transfer fees, foreign transaction fees, and late payment fees. It’s easy to avoid paying annual fees by simply not apply for credit cards that charge them. Sometimes, though, the annual fee could be worth it depending on what rewards are offered.
Balance transfer fees are charged when you move debt to a new credit card. Make sure the balance transfer fee doesn’t negate your savings on interest. For those who travel often, watch out for foreign transaction fees, which can range from 1% to 3% of your purchases overseas. You can easily avoid late payment fees by paying at least the minimum payment by the due date. Some credit cards offer forgiveness for your first late payment.
Qualifications for sign-up bonus. Whether it’s in the form of miles, points, or cash, a credit card sign-up bonus can be a huge financial boost. There’s usually a required amount of spending within a certain timeframe in order to qualify for the sign-up bonus. Make sure you’re able to meet those qualifications before you apply for the credit card if you’re after the sign-up bonus.
Resource: The Best Credit Cards of 2017
Rewards. Credit card rewards can be very financially beneficial when paired with your spending habits. For example, a credit card that rewards you for gas purchases is great if you drive often. If you travel often, a card that offers points in the form of miles would be incredibly convenient. Since the accrual rates for points, cash, or miles varies depending on the credit card, knowing your spending habits will help you decide which form of rewards is best for you.
Final Thoughts
Once you have a general idea of your creditworthiness and what you want out of a credit card, it’s time to start applying. Applying for new credit can cause your credit score to temporarily decrease a little, since inquiries affect your credit score. So if you’re about to buy a home or lease a car, applying for a credit card might not be the best idea right now. It’s best to apply for a credit card when you don’t have any big financial events impending.
