Facing credit denial can be heartbreaking, especially when you urgently need it. However, it’s crucial to understand that there’s no quick-fix solution to instantly perfect your credit standing. And even if you have a pristine credit score, credit card approval has become more selective over the years. Financial institutions have grown more cautious, demanding additional information like employment verification and income documentation.
While you can’t control a bank’s decision on your credit card application, the good news is that you can influence your credit score and other determining factors. In this article, we’ll explore several strategic actions you can take to potentially boost your credit ratings in a relatively short time.
Factors that affect your Credit Card Approval
You’re likely familiar with your credit score, but there are additional factors to consider when it comes to securing loans and credit. In this section, we’ll delve into these often-overlooked elements that bankers and lenders carefully evaluate.
1. Credit History
Your credit history, which includes your payment track record and credit usage, significantly influences your credit card application. Lenders assess your credit report and may also consider your credit score, which is a numeric representation of your credit history. We’ll talk more about that later.
2. Capacity
Lenders need to ascertain if you can comfortably manage your payments. Your income, employment stability, and debt-to-income ratio are crucial factors. The debt-to-income ratio compares your debt to your pre-tax income.
3. Number of Delinquencies
Late or missed payments can affect your credit card application. Multiple delinquent accounts may make you less appealing to lenders.
4. Capital
Capital represents your savings, investments, and assets that could be used to repay the loan, particularly in case of financial setbacks like job loss.
5. Conditions
Lenders consider the purpose of the loan and external factors like economic conditions when assessing your credit application.
6. Income and Employment History
Lenders want assurance that you can repay the borrowed amount. Steady income and employment history are essential factors.
7. Debt-to-Income Ratio
As mentioned earlier, your monthly debt obligations compared to your monthly income, known as the debt-to-income ratio (DTI), are crucial. Lenders prefer a low DTI.
8. Credit Card Utilization Rate
Consistently using a high percentage of your available credit may raise red flags, as it suggests difficulty in repaying debt.
If you have a limited credit history, starting with a secured credit card can help you build credit responsibly.
9 Ways to Boost Your Credit Card Approval Odds
Your credit score is the lifeblood of your creditworthiness. If you’ve been neglecting it, this section is here to provide you with practical methods and actions to improve your score, increasing your chances of securing credit for that new car you’ve been eyeing.
Timely Payments
It’s easier said than done but ensuring that all your credit card payments and other monthly bills are made early or on time is crucial to your score. Late payments can significantly impact your credit score and hinder your credit card approval odds.
Pay Down Debt
It would help if you consciously made efforts to reduce debts like mortgage debt, payday loans, medical debts, etc. Maintaining a credit utilization rate below 30% by having less than $3,000 in debt per $10,000 in total credit limits is advisable.
Keep Old Accounts Open
Having older credit cards and lines of credit that you don’t necessarily use can actually help boost your credit history in a good way. So, it’s beneficial to keep these accounts open, even if you’re not actively using them.
Maintain Employment
You might see your job-hopping season as a journey to finding yourself, but lenders see it as unstable income. Unless you have a trust fund waiting for you somewhere, be prepared to prove your ability to repay your balances.
Monitor Your Credit Score
Regularly check your credit score for free from major credit bureaus. A good credit score, typically 670 or higher, enhances your chances of approval for a new credit card. Also, review your credit report for any inaccuracies, even minor ones like incorrect addresses, which can affect your credit score. Contact the relevant provider to rectify mistakes or inaccuracies.
Consider Secured Credit Cards
This is playing the long game, but if your credit score isn’t ideal, secured credit cards, which require a cash deposit as collateral, can help you build credit when traditional cards are hard to secure.
Minimize Frequent Moves
While it’s not always possible, avoid changing your residence frequently. Lenders prefer stability in your circumstances, and frequent moves can raise concerns about your financial stability.
Set Up Direct Debit
Automate your credit card payments to ensure you never miss one. This won’t rapidly boost your scores but will prevent them from dropping due to missed payments.
Pay Twice a Month
Instead of one big monthly payment, make smaller payments every two weeks. This helps you make extra monthly payments and can save on interest. Extra payments also lower your credit card balances and utilization ratio, benefiting your scores.
Things you should avoid while building credit
When it comes to building credit, it’s essential to be cautious and not rush for quick fixes. Here are some pitfalls to avoid:
Don’t Apply for Multiple New Credit Cards
Opening too many new credit card accounts can lead to numerous hard inquiries, making you appear risky to lenders. It may help your credit utilization ratio but could harm your overall creditworthiness.
Avoid Unnecessary Loans
Applying for a new loan solely to diversify your credit mix isn’t a good idea. Only consider a loan when you genuinely need it.
Avoid Carrying Credit Card Balances
It’s not easy but carrying a balance on your credit card just to build credit can result in unnecessary interest charges and increase your credit utilization ratio, potentially lowering your scores.
Think Twice Before Closing Credit Cards
Closing a credit card after paying it off may negatively impact your credit history’s length. It’s often better to keep it open unless there are compelling reasons not to, such as tempting spending habits or excessive annual fees.
Conclusion
You should understand that improving your credit takes time.
New financial activities may not show up on your credit report right away, and actual score improvements can also take time.
However, educating yourself and taking steps to boost your credit is a good start. The key is to begin as early as possible to speed up the process and see better results sooner. Keep following the steps we discussed, and best of luck with your credit improvement journey!
