Information Center – News and Articles about Credit Cards
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[05/24/2007]
Getting Your Credit Card Application Approved
Without positive credit history on your side, you may find your credit card applications being turned down. It’s a catch-22: You need established credit to get a credit card. But without getting a credit card, it’s impossible to establish good credit!
This can be a very frustrating cycle, but there are ways to work against it. If you know what kinds of credit cards are available, you can take advantage of the opportunities that lie before you.
What type of credit card applications you fill out depends on your situation. There are credit cards for students, credit cards for bad credit, and cash back rewards credit cards, just to name a few. If you have no credit already, you might have to use a secured credit card application, or get a cosigner.
A secured credit card is where you pay a deposit up front. Often, the deposit matches your credit limit -- which means you’re basically spending your own money. Why do it at all, then? Because using the credit card establishes credit history for you, which spending your own cash out of a checking account would not do.
Unsecured credit cards are much more common, of course. With an unsecured card, if you don’t pay your bill, the creditor can only sue you or force you into bankruptcy; he has no right to take your car or house or whatever.
As the secured credit card application would point out, a secured card looks like a regular one, and has all the same uses. But it usually has a higher interest rate -- credit cards with low APRs are generally unsecured -- and the credit line is usually not very high. But it helps you establish credit, which is important if you’re just starting out (or starting over).
You may also need to get a cosigner for your credit card application. In this scenario, a cosigner simply agrees to be responsible for your debts if you fail in your obligations. If you did default on your payments, your cosigner would have to take over.
Because so much trust is involved, a cosigner is usually a family member or close friend. You would have to convince this person that you absolutely will not fail in your duties. If you did, the bank could come after the cosigner with all the same punishments that it has against you -- garnishing wages, lawsuits, and so forth.
But in spite of the risks involved, a cosigned credit card can be a very useful thing in helping someone build good credit history. You need to build good history so you can start using credit card applications for yourself.
You should understand how credit card companies decide who’s worthy and who isn’t. In general, they’re looking at three things: your ability to repay the debts based on your income and current debt; any collateral or assets you have; and your payment history and employment history.
To get a sense of what will happen with your credit card applications, look at your credit report. You can get it from any of the three main credit bureaus, TransUnion, Experian, and Equifax. They get their information from the people you have credit with, and from the government and the court system. They use all the data to come up with your credit score. These can range anywhere from 350 to 850. If you have at least a 620, your credit is pretty good, and you’ll get credit cards with low APRs offered to you -- the best credit cards, in other words.
For the most part, your credit score is based on your payment history in the past two years, though other things such as bankruptcies will overshadow it for longer. The credit bureaus use secret formulas and mathematical algorithms to determine your scores.
At least once a year, you should get a copy of your credit report from any or all of the three bureaus and examine it carefully for mistakes and outdated information. Look especially for errors with your basics -- name, address, Social Security number, employer, etc.
The Fair Credit Reporting Act ensures that you have certain rights with regard to your credit report. While the bureaus can charge you for your credit report normally, they’re obligated to give you a free copy if you’re unemployed and looking for work, on welfare, or if you’ve had a credit card application or other credit denied in the last 60 days.
If there are mistakes on your credit report, you simply have to contact the bureau and inform them. There is generally no need to pay “credit repair” companies to fix your credit for you; there’s nothing they can do that you can’t do yourself. There is no fee to dispute information on your credit report, and the bureaus are obligated to look into it within 30 days of the dispute.
Once your credit report is error-free and as positive as you can make it, start filling out those credit card applications. Be sure to use your first card responsibly, to continue to establish good credit history.
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