Obtaining a credit card depends on meeting a bank's criteria for approval. The factors a bank considers also determine the credit limit you will be given and the interest rate you will pay. It is helpful to understand how banks assess your credit card application, so you can improve those factors to get the best deal on a credit card.
FICO Score
One key factor banks consider is your FICO score. FICO credit scores are reported to the three credit bureaus -- Experian, Equifax and TransUnion. The score is based on information in your credit report regarding credit-related activity and does not take into account income or assets. FICO credit scores are negatively impacted by a number of factors, including late payments, an excessive number of credit card accounts, a high credit utilization ratio and a short history of established credit. Other factors that hurt a credit score include public records indicating a bankruptcy or criminal record. FICO credit scores range from 300 to 850. According to the Financial Web website, a FICO score above 680 is considered good, scores between 620 and 680 are moderate, and a FICO score below 620 is considered poor. The FICO score is the most common credit score but not the only one. The credit bureaus may provide lenders other credit scores, which are based on a model similar to the FICO model. VantageScore is one such credit score.
Free Credit Report
You can obtain a free copy of your credit report once each year through AnnualCreditReport.com. The credit report does not include your score, but it includes all the information used in calculating the score. Before you apply for a major loan, you should review your credit report for accuracy. You can dispute items you believe are inaccurate, and having negative inaccurate items removed from your credit report can improve your credit score. A better score can improve you chances of obtaining a credit card and may lower the interest rates you will be charged.
Ability to Pay
Banks also examine your ability to pay by reviewing your household income and outstanding debt. They often review your debt-to-income ratio, and if the amount of your debt represents a high percentage of your income, it will hurt your chances of obtaining a credit card. Banks also consider your monthly expenses and whether some expenses are fixed payments, such as fixed-interest mortgages.
Payment Probability
In general, banks assess the probability you will make timely payments. They examine the type of job you have, how long you have had that job and gaps in your employment history, all of which indicate the level of income stability. Besides considering the credit score, banks may consider specific factors in your credit report, such as how many times you were late in payment.
Standards
Bank standards vary for credit card approval. If one bank turns your application down, you can apply to other banks that may have lower standards for approving your application. If the standards are lower, however, the credit card company is apt to charge you higher interest rates. Also, each credit card application requires the bank to make an inquiry on your credit report, and those inquiries hurt your credit score slightly.
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