In this article, we are going to look at the information you are going to need on hand, as well as the steps that you will need to take, in order to apply for a credit card.
Understanding How to Apply for a Credit Card
Limits and Amounts
The first thing that you need to understand is that, when applying for a credit card, you will be given a “limit” for that card. This limit is the amount of money that the credit card company will allow you to spend on credit at any one time. This limit is determined by your past credit history and the income information that you provide to the credit card company.
Of course, you are allowed to spend up to the limit at any given time. However, it is not advised (more on this later in the article).
What Types of Credit Cards Are There?
With “secured” cards, you put down a deposit in a savings account or CD. You have to ensure that you can pay off the full limit at any given time. For example, if you are offered a credit limit of $1,000, you will be required to keep $1,000 on hand. This is so that you can pay off the card at any given time.
“Unsecured” cards do not require this money to be kept on hand. Both types of cards will build your credit. However, secured cards are usually used by individuals who are trying to build their credit for the first time or rebuild poor credit.
How to Apply For a Credit Card
So, you want to apply for a credit card? There are a couple of things that you will need:
- Know your current credit score.
- Have yearly income info on hand.
- Know which credit card(s) you want to apply for.
The first step is to know your current credit score. This will have a large impact on which cards you could reasonably be approved for. You can get a free credit report by visiting this website. Also, you can learn your credit score for free by using the Credit Karma website.
As we already mentioned above, you will need to know your yearly income for the actual application process. This will help the credit provider to know how high they should set your credit limit.
Finally, you will need to know which credit card(s) you want to apply for. As a general rule of thumb, you should not apply for a credit card more than twice a year. This is because hard inquiries into your credit report by lenders hurt your credit score. Also, they make you look desperate for credit. This will eventually prevent credit companies from lending to you if you apply continually.
If you have never tried to apply for a credit card before, consider this. Apply for a credit card that is a secured card. Otherwise, if you are a student, apply for a student credit card. You will likely receive a lower credit limit than someone else. Still, this will give you a chance to build up good credit that will help you later.
Now, here are the specific steps that you will need to follow in order to apply for a new credit card:
1. Go to the credit issuer’s website or local bank that is offering the credit card.
2. If you are at a bank, request a credit card application for the card that you hope to get approval for. If you are applying online, simply choose the card that you would like.
3. Fill out the corresponding application. They will ask you for things like:
- Full Name
- Social Security Number
- Date of Birth
- Address Information
- Income Information
- Monthly Mortgage/Rent Payment
4. Submit your application.
In the case of an online application, you may get approval instantly at this point. Otherwise, the company may want to do some income verification research or take a while to decide. As such, you may hear that a decision will come in the mail within 10 business days. In the case of an in-person application, you will probably have to wait at least a few days before you get a call. It will come from your banking representative. You will find out the outcome.
In either case, if you do not get approval, you can always dispute the result. In many cases, individuals who did not get approval at first for various reasons often get it after they make a call to the card company. You can also go back and speak with their banking representative.
How Does Repayment Work?
When you begin to spend using your credit card, this accrues as a credit “balance”. Each month, you can choose to either pay your balance in full on the statement closing date. Otherwise, you can pay the minimum balance required.
As long as you make the minimum payment, your credit score won’t necessarily go down. However, it can take quite a long time to pay off simple debts if you are only paying off the minimum each month, and you will pay a lot more in interest for doing so.
For example, if you charged $1,000 to a credit card that has a 22% APR rate, and you decided to only make the minimum payment of $30 each month, you would end up paying almost $560 in interest, and it would take you 4.3 years to pay off the balance! Carrying a credit card balance is costly!
FAQs We Know You Have
Before you apply for a credit card, here are some of the questions we are frequently asked:
1. Will I be charged interest if I pay my balance in full each month?
The most common misconception about credit cards is that you will pay interest on any balance at any time. This is not correct. You only pay interest when you carry a balance from month to month.
2. What is a variable APR?
Most credit cards have what they call a variable Annual Percentage Rate (APR). This means that the interest rate on the card can go higher or lower based on a variety of factors.
3. Can I get a higher limit later on?
Most credit card issuers will review your relationship with them regularly to see if you are worthy of a higher credit limit. However, you can always call and ask for a higher limit!
Now that you know how to apply for a credit card, it’s time to put your newfound knowledge to use! Make sure that you apply sparingly and only for cards that you really want. Understand that getting the best, top-line cards doesn’t happen overnight. Rather, you must build your credit for a number of years to get approval for the best credit cards.
As always, please feel free to share your experiences with us concerning the application process for any card(s) that you have applied for. We look forward to hearing about your credit card user experiences!