How Credit Card Approval Works

For many people, applying for a credit card can feel like a daunting task, especially if you’re unsure about how the approval process works.

While it might seem like a mystery, understanding how credit card approval functions can make it much easier to get the card you want, or at least set you on the path to better financial health.

Credit Score: The Foundation of Approval

The first factor that influences credit card approval is your credit score. This score is a reflection of how well you’ve managed your credit in the past, and it’s the primary number that credit card companies look at when deciding whether to approve you for a card.

• Good Credit Score: If you have a credit score of 700 or above, you’re in a great position to be approved for most credit cards. These cards often come with better benefits like low interest rates, high rewards, and more flexibility.
• Fair Credit Score: A score between 580 and 699 means you might still get approved for some cards, but you may face higher interest rates and lower credit limits.
• Poor Credit Score: A score below 580 can make it more difficult to be approved for traditional credit cards. However, there are still options available, such as secured cards, which may be easier to obtain.

Your credit score is like your financial resume, and it plays a major role in determining your eligibility for most cards.

Credit Utilization Rate

Credit utilization refers to the amount of credit you’re using compared to your total available credit. This ratio is another important factor in the approval process.

• Lower Credit Utilization: If you’re using less than 30% of your available credit, you appear more responsible to lenders and have a higher chance of being approved for new credit cards.
• High Credit Utilization: If you’re consistently using a large percentage of your credit limits, lenders may view you as a higher-risk applicant, and this can negatively affect your approval chances.

Keep your credit utilization low by paying off your balances regularly and not maxing out your credit cards. This shows lenders that you manage your debt responsibly.

Credit Inquiries: Soft vs. Hard

When you apply for a credit card, the issuer will check your credit report, which can result in a hard inquiry (or hard pull). Too many hard inquiries can hurt your credit score and make future approvals more difficult.

However, there’s also such a thing as a soft inquiry, which happens when you check your own credit report or when you’re pre-qualified for a card. Soft inquiries do not affect your credit score and do not impact your approval chances.

• Too many hard inquiries: Applying for several cards in a short period can indicate that you’re desperate for credit, which can be a red flag for lenders.
• Few or no hard inquiries: Having fewer recent credit applications can show that you’re not overextending yourself financially, which can increase your chances of approval.

If you’re actively looking for a credit card, it’s best to apply for one card at a time, rather than multiple cards in a short period.

Types of Cards and Their Approval Criteria

Different types of credit cards have different approval requirements. For example:

• Secured Credit Cards: These cards are designed for people with little or no credit history or poor credit scores. They require a deposit upfront, which acts as your credit limit. Approval is easier with these cards, but they often come with higher interest rates.
• Unsecured Credit Cards: These cards do not require a deposit and typically have higher credit limits, but they also have stricter approval criteria.
• Store Credit Cards: Store-specific credit cards tend to have more lenient approval criteria compared to general-purpose cards. However, they often come with higher interest rates and fewer benefits.

If you have limited or poor credit, starting with a secured card or store credit card can be a good stepping stone to improving your credit and eventually qualifying for better cards.