By Amy Beardsley
Are you thinking of applying for a credit card? You're in good company with over half a million Americans submitting a new credit card application every day according to the Consumer Financial Protection Bureau.
Applying for a credit card is simple but getting approved isn’t so easy. Both your credit score and your self-esteem can take a hit if your application is denied. To increase your chances of being approved, we present the best tips from top credit experts on what not to do when applying for a new credit card.
1. Ignore your credit report
Miguel A. Suro, Miami attorney and personal finance writer at The Rich Miser, says knowing what's on your credit report is key. He states, "It's important to check your credit report and score before applying for credit cards so you can (1) check for errors which you need to dispute, and (2) verify if your credit score is high enough to have good odds of approval for the card you're seeking." You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
Credit score impact: Suro explains that each application results in a hard inquiry on your credit report which lowers your score by a few points. He reports, "If you get declined, you'll not only lose out on that card but also take an unnecessary hit to your credit score."
2. Apply for many credit cards at once
"When you apply for a credit card, take time to understand the pros and cons of each card you may be considering," states Chase Lawson, author of Financial Freedom: Breaking the Chains to Independence and Creating Massive Wealth. "Decide going in which is best for you and then apply to that one and that one only."
Credit score impact: Multiple inquiries "make you appear less creditworthy, leading to higher interest rates, lower credit limits and a lower likelihood of being accepted," says Lawson.
3. Rack up too much debt
Instead of racking up too much debt, "keep your credit utilization low," notes Rachel Richards, who is a former financial advisor and author of Money Honey. She advises against using your entire credit line just because it's available. "To ensure you are not racking up debt or utilizing too much of your credit, pay your credit card balance in full each month."
Credit score impact: Your outstanding balances are a major factor in your credit history since the amount you owe makes a considerable impact on your credit score.
4. Skip payments
Your credit score is the primary consideration when companies are deciding whether to approve your application. Mike Pearson, founder of CreditTakeoff.com, says, "The most important factor that goes into calculating your score is your payment history. Your payment history simply means: Are you making your credit card payments on time, every time?"
Credit score impact: "If you're not [making payments], it could significantly impact your credit score," states Pearson. "Just one late payment could drop your score 50-100 points."
5. Cancel accounts in good standing
Canceling old accounts seems like a logical step to take when cleaning up your credit report. But "unless you aren't getting value from an annual fee, avoid canceling accounts that are still in good standing," says Nathan Grant, a credit industry analyst for Credit Card Insider. "Credit scoring models consider how long it has been since you opened your oldest account as well as the average age of all your credit card accounts when factoring your credit scores."
Credit score impact: "Leave credit card accounts that are paid in full and in good standing open. This will keep your total balances low relative to your credit limits and improve your scores," says Grant. The longer your credit history the better.
6. Cosign for someone financially irresponsible
If a friend or family member is struggling to qualify for a car note, student loan, or mortgage, agreeing to cosign for them is tempting. "Cosigning a loan for someone takes your financial stability out of your hands," reports Jared Weitz, CEO and Founder of United Capital Source, Inc. "The chances of the primary borrower making late or missed payments are statistically high."
Credit score impact: As a cosigner, the loan affects your utilization ratio and becomes part of your credit score. Weitz says, "This puts your credit history at risk and makes you responsible for a debt that will not benefit your finances." Any mistakes the primary borrower makes reflect on your report, too.
7. Lie on your application about your income
"If you lie about your income to get approved for a credit card, you are committing fraud, which can cost you hundreds of thousands or more in fines or even land you in prison," states Nathan Grant of Credit Card Insider.
Credit score impact: According to Grant, "Metrics like your income and assets measure your financial ability to pay as you agree upon with your lender, but they don't affect your credit scores directly."
Before you submit your next application, understand that building a solid credit history takes careful planning. Do your homework and don't apply for multiple cards at the same time. Pulling your credit report to check for accuracy and dispute errors can improve your odds of being approved. Each credit reporting agency produces their own report, so your three reports might not contain all the same information. Therefore, it's important to obtain a copy of each and review it on a regular basis. Join MoneyTips to see your three credit reports today.
If you want more credit, check out our list of credit card offers.