6 Things You Should Never Do When Applying for a Credit Card
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You're ready to move up to a better credit card, one with a lower interest rate and a generous rewards program. (See also: Best Travel Rewards Cards)
But how do you boost your chances of actually qualifying for one of these credit cards?
Here are six mistakes to avoid if you want banks to approve you for new credit.
1. Make a Late Payment
Don't ever pay a bill late if you want a new credit card. Every late payment will cause your credit score to fall, often by as much as 100 points. They will also remain on your credit reports — you have three, one each maintained by the national credit bureaus Experian, Equifax, and TransUnion — for seven years.
Don't panic, though, if you're a day late on a credit card payment, auto loan payment, or mortgage payment. Late payments usually aren't "officially" late until they are at least 30 days past due. Most lenders won't report late payments to the credit bureaus before you hit that 30-day mark.
The lesson is clear, though: Do not let a late payment linger. Credit card providers will take a long look at your credit score and credit reports. A late payment can make you look irresponsible.
2. Run Up the Balances on Your Other Credit Cards
If you use too much of your available credit, your three-digit credit score can take a tumble, making it less likely that financial institutions will approve you for a new credit card.
If you have three credit cards with a total available credit limit of $20,000 and you owe charges for a total of $18,000, you are using far too much of your available credit — giving you a dangerously high credit-utilization ratio. The providers of credit cards generally want to see your credit-utilization ratio at 35% or lower.
3. Cancel Your Other Cards
Along the same lines, it's never a good idea to cancel existing cards (even if you have no balances on them) when applying for a new credit card. Again, this goes back to your credit-utilization ratio. If you cancel a card that you're not using, you will automatically lower this ratio.
Say you have four credit cards with a total available credit of $30,000, and you have $5,000 worth of charges spread across three of those cards. Say, too, that your fourth credit card, which has no balance, has $10,000 worth of available credit. If you close that card, you now have $5,000 worth of charges against just $20,000 of available credit — a less attractive credit-utilization ratio in the eyes of credit providers.
4. Apply for Too Many Credit Cards at Once
You might think it makes sense to apply for several credit cards at once. You can then pick and choose from the resulting offers to find the card with the strongest rewards program and lowest interest rate.
But applying for five, six, or more credit cards at once could actually cause providers to consider you too much of a risk.
When they pull your credit, providers will see the recent credit inquiries made by other financial institutions. When they see several inquiries all at once, that raises their suspicions. Are you shopping for the card with the best interest rate or are you applying for scads of new credit because you are struggling financially? You never want to give credit card providers a reason to wonder about your motives.
5. Co-Sign on a Loan
You might think of co-signing on a child's car loan as a nice thing to do. But doing so can trash your credit score, and ruin your chances of qualifying for a credit card.
If the person who takes out the loan defaults on its payments, it will damage your score. That's because when you co-sign, you are telling a lender that you agree to be responsible for the loan, too.
The lender behind the loan will also come after you if the primary borrower stops making payments. That's bad, too. But when it comes to applying for a credit card, the damage that a co-borrower can do to your credit score is the bigger problem.
6. Skip Ordering Your Credit Reports
There is no reason not to check your three credit reports for errors before you apply for a credit card. You can order one free copy of each of your three reports once a year from AnnualCreditReport.org.
Doing so is important. Your credit report could contain errors. Maybe it lists a late auto loan payment when you know you've always paid your car bill on time. Or maybe it lists a Chapter 13 bankruptcy on your report that should have dropped off it years ago.
These mistakes can cause your credit score to drop, and lower your chances of qualifying for a new credit card. If you do spot errors on your report, contact the offending credit bureaus by email. Ignoring mistakes can consign you to a lower credit score than you deserve.
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How are you keeping your credit in good shape?
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