The economic downturn caused by COVID-19 has made lenders more conservative in approving lines of credit. This means that if you have bad credit, it will now be harder for you to get a credit card.
It can be especially difficult for first-time credit card users to qualify for a credit card. Not only has the pandemic changed credit card standards, but young adults with little to no credit may already have a hard time qualifying.
Even so, if you have all the correct information, applying for a credit card can be hassle-free. Here’s what you need to know and do to get a credit card:
Basic requirements for getting a credit card
To qualify for a credit card, you’ll need to start with some basic information and documents that the card issuer will review when reviewing your application:
- social Security number
- Proof of identification (such as a driver’s license or birth certificate)
- Proof of income – don’t forget to include all your sources of income
From there, you’ll take the exact steps below:
1. Check your credit history
Your credit score and credit report are important metrics used by lenders to determine your creditworthiness. Your credit report is a record of your financial history, and your credit score is a numerical rating based on that report. You can check your credit report for free once a year.
Knowing your credit score and knowing what’s in it is a good first step in applying for and using a credit card. The higher your credit score, the more likely you are to be approved for a new card and the best rate.
2. Improve your credit score
Some cards require better credit than others, and if you have a bad or poor credit history, you may not be able to get a card right now, or you may not be eligible for the best interest rates. But rest assured, there are safe ways to build your credit score, even if you have a poor or no credit history. Here are some options for first-time visitors to consider:
Try a student credit card
Student credit cards are designed for college students who have little or no credit history and who earn less than working adults. They usually have lower credit limits and higher interest rates, but can be a good starting point for building positive credit. You are more likely to get a student credit card approved by a major credit card issuer with no credit history than a non-student card.
Find a retail credit card
Retail or business credit cards are designed to offer rewards or discounts to frequent customers who spend at a particular store. Unlike student credit cards, retail credit cards can only be used in open stores. Approval standards for retail credit cards tend to be looser than for other traditional credit cards – as stores benefit from higher consumer spending. If you’re spending a lot of money in one place, a retail credit card can be a great way to build your bankroll with purchases you already plan to make. You can also get discounts or bonuses.
Get a co-signer or become an authorized user
Getting a credit card co-signer can help you get approved for credit cards that might otherwise be difficult. Being a co-signer means that if you fail to pay your debts, someone with a good credit history will be legally responsible for your debts. Because of this commitment, lenders will often approve co-signed accounts, even if they won’t approve individuals. Authorized users work differently. An authorized user is a person who holds a card with an existing credit limit. Authorized users are not legally responsible for any refunds to the account and are subject to the master account holder. Becoming an authorized user is a great way to build your bankroll.
3. Shop around
Credit cards can offer different types of rewards and benefits for certain categories of spending. Some reward frequent flyers charge their card for their airline, car rental and hotel purchases. Others are designed for regulars from online or brick-and-mortar retailers. Still others help people save on everyday purchases from gas to groceries. With that in mind, here are some of the more common types of credit cards:
Cash back credit card
Cash back credit cards offer a simple rewards system. Buying certain items with a credit card is an easy way to make money. Some cards offer a flat rate for all purchases, such as B. 2% off any purchase. Others have a layered system, eg. B. 3% off groceries, 2% off gas, and 1% off all other purchases. If you use a credit card to pay for everyday expenses, a cash back credit card can be a good option.
Point-based map
Points can be redeemed for U.S. dollars, but how many points you earn for a particular item depends on the reward structure and card redemption value. It is important to note that points cannot always be directly exchanged for cash. Some cards may only allow you to redeem points for things like travel cards or gift cards, and the redemption bank statement balance is usually the closest to the cash value.
Miles
Some airlines offer rewards in the form of miles that you can redeem when booking your first post-pandemic trip. Some mileage-based credit cards start with points—a certain number of points that can be redeemed for a certain number of airline miles. If you don’t travel a lot, cashback or loyalty cards may be better options.
It may be harder for beginners to qualify for some of the more lucrative bonus cards. Start with basic credit cards to build your credit score, then try to get better deals.
“Our goal is to build a better product,” said Bruce McClary, vice president of communications for the National Credit Counseling Foundation. You may not initially be eligible for the best prices and terms, McClary said. But this is the starting point for building credit.
4. Know what you’re signing up for
Credit cards are a type of loan, and the economic downturn caused by COVID-19 has made borrowers more conservative in approving loans and credit cards. Depending on your credit rating, you may find it more difficult to get approved at this time.
Applying multiple times in a short period of time can also temporarily hurt your credit score, so choose carefully the credit card applications you submit. Before applying, take the time to find a card that is most likely to be approved and meet your needs. Here are some other things to note:
- Credit card payments: Credit cards have high interest rates compared to other types of credit cards, so monthly debt incurs additional interest costs.
- Missed Payments: Failure to pay by the due date can sometimes result in additional fines/fees and hurt your credit score.
- Credit utilization: How much credit you have available compared to your current balance. A total credit utilization rate of over 30% can negatively impact your credit score, so be mindful of your available total credit limit.
5. Application
Don’t forget to consider a card from a community bank or credit union in your area. These cards often offer comparable rewards to cards from major issuers, but may be easier to qualify, especially if you already have an account history with a bank. Before you apply, compare all the credit card offers you find and consider details such as your spending habits, likelihood of approval, branch access and long-term credit card usage when making a decision.
Once you’ve selected your card, online-only or otherwise, you can usually apply entirely online. Have all information ready, such as your Social Security number. Make sure to include all sources of income on your application to increase your debt-to-income ratio, a factor that can affect your credit score. Here’s a breakdown of how it will work:
- Before applying, compare all credit card offers you find and take into account details such as your spending habits, likelihood of approval, branch access and long-term credit card usage when making a decision
- Once you have selected your card, online only or otherwise, you can usually apply completely online
- Keep all your information at your fingertips
- Make sure to include all sources of income on your application to increase your debt-to-income ratio, a factor that can affect your credit score
Línea de fondo
Once you have a credit card, it is crucial to be responsible for building a good credit history.
Once you have a credit card, “only spend what you can pay back in full each month,” says Matt Sheridan, chief financial analyst and senior associate professor in the School of Finance, Department of Finance, The Ohio State University’s Fisher School of Business.
The most important thing you can do with a loan is to make payments on time. Payment history accounts for 35% of your credit score. Also, if you are late, your creditors may charge you at their discretion, which will add to your existing balance. If your credit card payment is more than 30 days late, it will remain on your credit report for up to 7 years.
Be aware of when your payments are due, your credit limit, and how you may be charged additional fees from your issuer. “Set monthly calendar reminders to pay before your due date,” Sheridan said. Automatic payments are also a great way to keep track of on-time payments.
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