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Factors That Credit Card Companies Look at When Evaluating an Application


January 21, 2020

Credit Cards

Applying for a credit card can be an effective way to improve your credit score and provide yourself with financial flexibility. However, there is no guarantee that you will actually be extended a line of credit. Whether or not a credit card company approves your application depends on a variety of factors such as your credit score and history. How Does Your Credit Score Influence a Lender's Decision? Generally speaking, you can get a credit card as long as your credit score is 600 or higher. However, some cards are designed for those who have good or excellent credit. Typically, any score between 640 and 700 is considered good while anything between 700 and 750 is considered excellent. Most credit card companies will disclose their credit requirements during the application process, and you can check your credit score prior to applying. Why Does Your Credit History Matter When Applying for a Credit Card? Your credit history is important because it's an indication of how well you manage your debt. If you have missed payments in the past, there is a greater chance that you will do so again in the future. It is important to note that your credit history will come into play whether you apply for auto loans, a mortgage or any other type of financial assistance. The good news is that late or missed payments will only stay on your credit report for up to seven years. Therefore, lenders won't be able to see anything that you did more than seven years prior to the application date. However, if you file for Chapter 7 bankruptcy, it will stay on your credit report for up to 10 years. Your Income Could Play a Role in Approving or Denying an Application Credit card companies and other lenders want to make sure that you have plenty of money available to pay down any debt balance that you accrue. As a general rule, they don't want your debts to exceed 50% of your income before taxes. Therefore, if you only make $20,000 a year, you may have a harder time getting a credit card compared to someone who makes $100,000 a year. In addition, a person who is self-employed or relies on gig work for cash may have a harder time obtaining loan approval compared to someone who is a traditional employee. This may also be true when applying for home loans, auto loans or other types of funding. How Many Credit Cards Have You Applied for Recently? If you have applied for multiple credit cards in the past several months, it could be a red flag to anyone evaluating your application. This is because asking for multiple lines of credit could indicate that you are struggling to make ends meet. Ultimately, a credit card company may not believe that you have the financial ability to stay current on your credit account if you were allowed to have one. You should also note that your credit score will go down slightly each time that you apply for a card. Therefore, the act of applying for multiple credit lines could hurt your chances of obtaining one. In most cases, your score will rebound within a few weeks or months. It is important that you understand what credit card companies look for when evaluating an application. This will make it easier to find credit cards that offer the best rates for your credit score or the best perks to fit your lifestyle. Blogs, social media accounts and credit card companies themselves may be able to provide insight into which credit cards may be right for you.