The credit card application process can be mysterious because many credit cards issuers don't fill in the details about the most important terms of your account--the APR, minimum payment, and credit limit--until the credit history has been reviewed and the loan approved. Here are four things Bill Hardekopf says we should pay attention to earlier rather than later in the application process:
1. Start with Credit Score
Before you apply for a credit card, get a copy of your credit report and credit score because lenders use this to set your credit card terms. If your score is lower than you anticipated, check your credit report for errors and correct those before you apply.
Your credit score will help direct you to the cards that you should consider. While scores may vary among lenders, there are some general guidelines. If your FICO score is 750 or above, you should apply for the cards specifically offered for excellent credit.
A score of 720 or above is considered good credit; 660-720 is acceptable. A score of 640-660 is considered risky and the rates will be on the high end of the rate tiers; below 640 falls into sub-prime and credit card options are limited.
"Credit card issuers pull credit reports for every application. Consumers should not waste their time and apply for a card for which they are not qualified," says Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "If you apply for too many credit cards at once, this is a red flag and may actually cause your score to drop."
LowCards.com is a free, independent website that helps consumers easily compare credit cards in a variety of categories. It also gives an unbiased ranking and review for cards.
Hardekopf points to Capital One as one of the few issuers that offers consumers some helpful guidance for its credit categories. The description in their application reads:
* Excellent credit if you have: had a loan or credit card for at least five years; a credit card with a credit limit greater than $10,000; never declared bankruptcy.
* Good credit if you have: a loan or credit card for three years or more; a credit card with a credit limit above $5,000; not been more than 60 days late on any credit card, medical bill, or loan in the last year.
* Fair credit if you have: a U.S. loan or credit card; credit limit on a current credit card less than $5,000.
* Limited credit history if you have: your own credit card for less than three years or never had one; a limited credit history; a valid credit score that can be found at one of the major credit reporting companies.
2. APR
Most issuers still split the APR into interest rate tiers with three rates. If you have excellent credit, you will receive the lowest rate. If you have poor credit, you will receive the highest rate.
"If you typically carry a balance on your card, don't look at reward cards because these typically have slightly higher interest rates. Find the card with the lowest rate for your credit tier," Hardekopf says.
The federal Credit Card Accountability, Responsibility and Disclosure (CARD) Act prohibits issuers from raising interest rates during the first twelve months of the account (exceptions are late payments and increase in prime rate). After this, the issuer can raise the rate but must provide a 45-day notice.
3. Compare Minimum Payments
The minimum payment percentage sets your monthly payment. The minimum payment varies by issuer and the majority of issuers do not disclose this in their terms and conditions. The minimum payment typically ranges between 1%-3%.
LowCards.com surveyed the terms and conditions of 85 online credit-card applications. Very few included minimum payment calculations in the application's fine print. Some can be very difficult to understand.
4. Credit Limit
The credit limit is the most unpredictable and most frustrating of the three elements. The best way to guess what your credit limit will be is to average the credit limit of the other cards in your wallet. However, over the past two years issuers have slashed credit limits to reduce their loan risk. As a result, the credit limit may be less than you expect.
If I may add, every applicant of credit card companies must understand the rules, services, and terms so they will be more aware with budgeting. Usually, people who are bankrupt are those who overspend and don't pay their bills on the given time. In this case, debt settlement solutions is the best alternative for this. They may ask the guidance of a trustworthy lawyer who can also negotiate debt settlement issues.
ReplyDelete