Applying for a credit card can be a daunting process. And if you’re like most people, you may be worried about whether you’ll get accepted or not.
This makes sense, since no one has actually taught us how to apply for a credit card!
A credit card can be a great option and actually a smart decision. They can help manage your outgoing costs, allow you to earn rewards and help improve your credit score… to name a few. But, you will need to take stock and be honest with yourself. To be approved, you will need look as attractive as possible to lenders.
And bear in mind: Applying when your finances aren’t in order, or applying for a card that requires a higher credit score or income than your own, may cause more harm than good.
Lenders use the information provided by credit reference agencies to assess your risk level, decide how much you can borrow and what interest rate you will be charged. The lower the risk profile, the more attractive.
That may sound complicated, but fret not, there are lots of things you can do to achieve this, and in this article, I’ll break these down.
Below is your ‘To Do List’. Working your way through the following should help get your profile into tip top shape and ready to apply for the best credit card for you!
Pre-Application To Do List
1. Check and correct your credit report
Credit reference agencies are companies that compile information on how well you manage your credit and payments and give you a score. When you apply for a credit card, you effectively give the credit provider access to your profile, so we need to make sure it’s in great shape before they have a look!
The first step is to check your credit report and ensure the information they hold is correct. You can do this using one of three main credit reference agencies.
At www.equifax.co.uk you are able to view a free full comprehensive credit report online for 30 days, after which you will need to pay. A good score is over 420 out of 700.
Experian’s website offers a lifetime access to your profile, but only a 30 day trail of your comprehensive credit check, after which you will need to pay. A good score here is over 880 out of 999.
Checkmyfile includes Callcredit (newly named TransUnion) — along with Experian and Equifax — and offer 30 days access to your profile, at www.checkmyfile.com. A good score is 4 out of 5.
Once you’ve obtained copies of your credit report, you can get down to the work of checking them for accuracy. Below are the areas you need to check and, if any of the information is incorrect, you should contact the credit agency or relevant company to put it right:
- Your name and date of birth.
- The listed credit accounts. This included utility accounts, bank accounts, current credit card accounts. They will show if you’ve missed payments and the outstanding balance. Ensure to close those accounts that are no longer in use.
- Your current and previous addresses. In particular, ensure these are up to date.
- Whether you are on the electoral register for your current address.
- Your current-account providers, but only where you have an overdraft in use.
- Public record information such as County Court Judgments (CCJs). These are held on account for 6 years.
- Details of anyone financially linked to you. This will occur of you’ve opened a joint account, shared credit, or been a guarantor for someone. Credit agencies may check the associated partners credit profile when you apply for credit, as the association may affect your ability to repay debt.
- Fraudulent activity on your account. Keep an eye out for any unusual activity on your profile.
The credit report will not show your salary, student loans, council tax arrears, parking or driving fines, criminal record, or your medical history.
2. Keep up to date with payments
Missed payments, along with other negative remarks, appear on your credit profile for six years and have a damaging effect on your score. The longer a bill is left unpaid the more damage is caused, so it is in your interest to be on time.
You may find it useful to set up direct debits, so payments are made without you actively needing to process the payment. Paying on time shows lenders that you are responsible and capable of managing debt.
3. Keep debt levels low
If you currently hold debt, whether a mortgage, car loan, overdraft, store card, it is in your interest to keep the outstanding amount at a minimum. Credit issuers will check the amount of debt you hold to assess whether they are willing to offer more. Here, they are assessing your ability to repay your current debt and your requested debt.
Reducing the amount of debt you have will do wonders for your future borrowing. Understandably, repaying debt can be a time-consuming task, but it can really pay off. Doing so will help increase the chances you are offered the amount of credit you seek, and at a good interest rate.
To accomplish this, take time to draw up a personal debt repayment plan and stick to it. Be prudent with your spending and put energy into lowering your current debt. Paying more than the minimum payment speeds up the repayment process and reduces the amount of interest you pay.
4. Build credit
If you have not had credit before, it could be in your interest to get some. This may feel counter-intuitive, but it’s how the system works. It shows lenders that you can be trusted as you have responsibly managed debt before. You can start small, with low levels of credit.
If you haven’t already, you can start by opening a bank account and ensuring that it is well managed. If you decide to utilise an overdraft facility, try to stay within 25% of the limit and ensure to pay it off as quickly as possible.
You could also take out a mobile phone contract. And again, you must ensure you pay your monthly bill on time and manage spend.
Finally, if you need extra help, for example if your credit score is very low, it may be useful to apply for a credit building credit card first or a prepaid card. These are offered by lenders such as Aqua, Barclaycard, Vanquis, Capital One, Pockit, Optimum, and Virgin, among others.
5. Limit the number of credit applications
Applying for credit leaves a footprint on your profile. If your profile shows multiple searches carried out in a short space of time, lenders are less likely to offer credit.
There are two types of searches, ‘soft’ and ‘hard’. A soft check is a check carried out by a lender to cross check the information provided and to see whether you will be accepted. This type of check is not visible to other lenders and does not affect your credit score. Only you can see these on your profile, therefore the amount of these carried out has no effect.
A hard check occurs when a lender performs a full credit check on your profile. These searches are visible to other lenders performing checks on your profile, so all can see how many times you have applied for credit. Having too many leaves a negative mark on your profile and can lower your credit score. Hard checks are performed when applying for a mobile contract, a loan, applying for utility credit, and so on.
To reduce the number of hard credit checks performed on your profile, you should keep the number of credit applications low. It is also beneficial to leave at least three months between applications.
6. Pre-check whether you’ll be accepted
Here you are testing the waters! It can be useful to find out whether you will be accepted for credit before actually applying. This can be done via a number of companies. They will perform a soft check on your account and can provide a percentage likelihood of acceptance. These are offered by many companies including Experian, Halifax, Barclays etc.
You can also use our Credit Card Eligibility Checker to see a list of credit cards you may be eligible for without affecting your credit score.
7. Finally, chose a credit card fitting to your circumstances
Here is the last tip from me to ensure you are heading to a successful credit card application and healthy personal finances. The current market has a large range of credit cards available, nicely packaged to fit different personal needs, which is great. This means you are able to really pin point the best credit card to satisfy your needs and achieve what you set out to do.
With that in mind, it’s a good idea to take the time to identify what type of credit card best suits your personal circumstances and credit profile. For example, if (after completing the steps above), you find you still have a low score, you’d have a better chance qualifying for a credit card that helps people with lower scores, like Aqua, rather than a card from an issuer like American Express, which is mostly aimed at borrowers with high credit scores.
Also, as stated earlier, remember to pre-check credit card acceptance, this is a really great tool. You may also find it useful to have a read of articles explaining the various credit cards products available on the market.
The above offers a range of tasks to be completed before you go ahead and apply for the best credit card for you. Following them all through could both improve your credit score and improve your personal financial skills — a two in one!
As you may have noticed, some of these aren’t tasks that you start on a Tuesday and finish on Thursday. So get started as soon as possible, as it can sometimes take some months to see an improvement. Be patient and enjoy the journey though, and ‘well done’ in advance!
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