The Untold Guide On How To Apply For A Credit Card (Step By Step)
Do you have plans of having a credit card and you don’t know the appropriate steps to take in other to get it done? In this article, you will be given a step by step guide on how to apply for a credit card.
Applying for a credit card and waiting for approval or denial can feel as scary as taking a final exam or giving a public speech. There’s a huge array of credit card options on the market. Whether it’s a credit card that offers cash back or one that offers 0% on purchases, it’s crucial to know what to look out for when applying for credit.
How To Apply For A Credit Card
1. Work Out Which Card Best Suits Your Needs
First of all, it’s vital to assess what you need a credit card for.
You might be trying to clear an existing debt and therefore require a 0% balance transfer card, or you might want to receive something back on your spending through a cashback or reward card.
2. Check Your Credit Score
When you apply for a credit card all providers run a search on your credit history to see if you’re a suitable candidate. The better it is, the more likely you are to be accepted for the best deals.
It’s therefore a good idea to check your credit history with a credit reference agency such as Experian or Equifax before you apply for a credit card.
This will help avoid any surprises and also give you a chance to correct any mistakes.
3. Use An Eligibility Checker
Be wary of simply ploughing ahead and applying for a credit card as this will leave a print on your credit file, and if the provider rejects your application you may find it harder to get accepted by others.
Using an eligibility tool before you make your application allows you to compare credit cards and shows you which ones you’re most likely to be accepted for, so you can make your full application more confidently.
Importantly, it won’t leave a mark on your credit file.
4. Be Aware You Might Not Get The Rate/Deal Advertised
Credit cards are becoming more and more competitive. However, by law, only 51% of applicants need to qualify for the rates or deals on offer in order for providers to advertise them. That means a large chunk of applicants won’t qualify.
Instead, you might be offered a shorter 0% purchase or balance transfer deal or a higher rate of interest or annual percentage rate (APR). This is the official rate used for borrowing and takes into account the interest on the amount lent as well as other charges (such as annual fees).
If you are offered a higher interest rate or shorter 0% deal, you are not obliged to accept it and it’s always worth shopping around to see what other rates and deals are being offered by other providers.
5. Fill In Your Application Form
Once you’ve found the card you want to apply for, it’s time to fill in the application form. Be sure to complete your details as honestly and thoroughly as possible.
If you don’t want to apply online, you can often apply using a direct mail pack, over the phone, or by popping into your local bank branch. Just be aware some of the best deals are only offered online.
If your application is declined, it could be worth getting a copy of your credit file to find out why, and consider alternative options.
Alternatively, if it’s good news, simply sit back and wait for your card to arrive typically, this takes between 10 and 14 days, although it can be longer.
Now, that you have given detailed information about how to apply for a credit card, what do you think about the number of cards you need to have?
How Many Credit Cards Should I Have?
When it comes to credit cards, how many is too many? Unfortunately, there’s no magic number of credit cards to pursue. There are guidelines that can help you navigate your way to the solid financial ground, though.
The number of cards you have or at least their combined credit limits can affect your credit score, which then impacts your ability to secure important things like car loans and apartment rentals.
How Many Cards Do High Scorers Have?
People with scores of 785 or higher — whom credit scoring company FICO calls “high achievers” — have an average of seven cards, which include open and closed accounts.
In contrast, Americans on average have 3.1 credit cards and 2.5 retail (store) cards, according to a 2017 state of credit report by Experian.
Does The Number Of Cards Impact My Score?
The number of cards you have does not directly influence your score. If having more cards means you use less of your available credit that can help your credit score.
But if having lots of cards means you become disorganized and occasionally pay late, that can hurt your score. More important than the actual number of cards is whether you pay on time and use a relatively small portion of your available credit.
Here are a few things to keep in mind if you’re thinking of opening (or closing) a credit card:
Your Credit Utilization
The portion of your credit limit that you actually use, also called the credit utilization ratio, can account for about one-third of your overall credit score. In general, keeping your balances well below 30% of your available credit should help you maximize your score.
Opening new cards (and increasing your overall line of credit) could theoretically improve your credit score by decreasing your credit utilization. But applying for a new card often results in a hard credit inquiry, which can temporarily take a few points off your score.
Credit Age
When it comes to your credit cards, age matters. Creditors like to see a long, stable credit history. It’s not enough to have one really old card, though.
Your credit score considers the average age of all of the cards you have. That doesn’t mean you can never close a card. If you have a compelling reason — like high fees or poor service — it may be worth a possible temporary ding to your score.
Your Payment History
About 65% of your FICO score is determined by your payment history and credit utilization. That means paying on time is far more important than how many cards you have. It’s one of the few surefire ways to improve your credit score.
VantageScore, another major scoring company in the U.S., doesn’t give percentages, but it calls payment history “extremely influential.”
So How Many Cards Should I Have?
Ultimately, the number of cards you have has far less to do with your score than how you handle the cards you have and the money you owe. Here are five habits that will help polish your credit profile regardless of the number of cards you have.
- Pay on time, every time.
- Use credit lightly. Try to keep utilization under 30%, and lower is better.
- Keep credit card accounts open unless you have a compelling reason to close them.
- Have both installment loans (a set number of payments of the same amount) and credit cards.
- Space credit applications about six months apart so that you don’t have several credit checks at once.
Wow! This is an amazing idea. So, now that you have known the number of cards you can. What do you think of paying off your credit card debt?
How To Pay Off Credit Card Debt
In more ways than one, debt can be a four-letter word.
When it gets out of control whether from medical bills, shopping sprees, or unexpected emergencies it becomes an albatross that affects your emotional and physical health.
Although it might feel overwhelming, you can tackle any debt the same way: one step at a time. Here’s a guide on how to pay off debt and how to pay off credit card debt, in particular even when it seems impossible.
Start by learning what debt can do to your credit rating, and why credit card debt can be particularly damaging.
How Debt Affects Your Credit Scores
The first thing you should understand is that debt has a ripple effect across your entire financial life, including your credit scores.
In this article we’ll discuss two types of debt revolving and installment.
Revolving debt primarily comes from credit cards where you can carry, or revolve, a balance from month to month. You can borrow as much money as you’d like up to a predetermined credit limit and interest rates are subject to change. Your monthly payment may vary on revolving debt depending upon how much you currently owe.
Installment debt comes from mortgages, car loans, student loans, and personal loans. In most cases, the amount of money you borrow, the interest rate, and the size of your monthly payments are fixed at the start.
With both types of debt, you must make payments on time. When you miss a payment, your lender could report it to the credit bureaus a mistake that can stay on your credit reports for seven years. You may also have to pay late fees, which won’t impact your credit scores, but can be burdensome nonetheless.
Aside from your payment history, the way each type of debt affects your credit is quite different. With installment debt, like student loans and mortgages, having a high balance doesn’t have a big impact on your credit.
But revolving debt is another matter. If you carry high balances compared to your credit limits on your credit cards from month to month, it will likely have a negative effect on your credit scores especially if you’re doing it with multiple cards.
Your credit can be negatively affected because the percentage of available credit you’re using also known as your credit utilization carries significant weight in calculating your credit scores. To maintain good credit, you should keep your balances as low as possible on your credit cards. Ideally, you should pay off the full statement balances each month.
Why Credit Card Debt Is So Dangerous
When it comes to debt, credit card debt is often the most nefarious.
Credit card issuers can lure you in with a low introductory APR and gleaming credit line. But that introductory APR offer will eventually expire. When it does, you can find yourself staring at an overwhelming pile of debt if you didn’t manage your new credit card account the right way.
The reason revolving debt can be so overwhelming is because credit card interest rates are typically really high. So, if you’re just making the minimum payment each month, it will take you a long time to pay off your balance possibly decades. During that time, you’ll also pay a lot of interest.
Let’s say you charge $8,000 on a credit card with 17% APR, and then put it in a drawer, never spending another cent. If you make only the minimum payment on that bill each month, it could take you almost 16 years to pay off your debt and cost you nearly $7,000 extra in interest (depending on the terms of your agreement).
6 Ways To Pay Off Debt On Multiple Cards
Ready to pay off your debt? The first step is to create a debt payoff plan.
If you only have one debt, your strategy is simple: make the biggest monthly debt payment you can handle. Rinse and repeat, until it’s all gone.
But if you’re like most people in debt, you have multiple accounts to manage. In that situation, you need to find the debt elimination method that works best for you.
Many people turn to the strategies often exhorted by financial guru Dave Ramsey — the debt snowball and the debt avalanche. We’ll explain both of those approaches below, as well as alternatives like balance transfers, personal loans, and bankruptcy.
We recommend using the debt avalanche method since it’s the best way to pay off multiple credit cards when you want to reduce the amount of interest you pay. But if that strategy isn’t right for you, there are several others you can consider.
1. How Do I Pay Off Debt With the Avalanche Method?
With this debt elimination strategy, also known as debt stacking, you’ll pay off your accounts in order from the highest interest rate to the lowest. Here’s how it works:
Step 1: Make the minimum payment on all of your accounts.
Step 2: Put as much extra money as possible toward the account with the highest interest rate.
Step 3: Once the debt with the highest interest is paid off, start paying as much as you can on the account with the next highest interest rate. Continue the process until all your debts are paid.
Every time you pay off an account, you’ll free up more money each month to put towards the next debt. And since you’re tackling your debts in order of interest rate, you’ll pay less overall and get out of debt faster.
Like an avalanche, it might take a while before you see anything happen. But after you gain some momentum, your debts (and the amount of interest you’re paying on them) will fall away like a rushing wall of snow.
Example Of The Debt Avalanche In Action
Let’s say you have four different debts:
| Type of Debt | Balance | Interest Rate (APR) |
|---|---|---|
| Auto Loan | $15,000 | 4.5% |
| Credit Card | $7,000 | 22.0% |
| Student Loan | $25,000 | 5.5% |
| Personal Loan | $5,000 | 10.0% |
To use the debt avalanche method:
- Always pay the monthly minimum required payment for each account.
- Put any extra money toward the account with the highest interest rate — in this case, the credit card.
- Once the credit card debt is paid off, use the money you were putting towards it to chip away at the next highest interest rate — the personal loan.
- Once the personal loan is paid off, take what you’ve been paying and add that amount to your payments for the student loan debt.
- Once the student loan is paid off, take the money you’ve been paying toward other debts and add it to your payments for the auto loan.
So, you’ll end up paying off your accounts in this order:
- Credit Card ($7,000)
- Personal Loan ($5,000)
- Student Loan ($25,000)
- Auto Loan ($15,000)
Pros And Cons Of The Debt Avalanche
The debt avalanche will help you pay less in interest will get you out of debt more quickly. You’ll also have the satisfaction of seeing the highest interest rates disappear.
That’s why the debt avalanche is our recommended method for paying off debt.
The downside? It’ll generally take longer to see progress than with the debt snowball. So if you’re counting on some small wins to get you motivated, the next method may be a better fit for you.
2. How Do I Pay Off Debt With the Snowball Method?
With the debt snowball, you’ll pay off your debts in order from the smallest balance to the largest. Here’s how it works:
Step 1: Make the minimum payment on all of your accounts.
Step 2: Put as much extra money as possible toward the account with the smallest balance.
Step 3: Once the smallest debt is paid off, take the money you were putting toward it and funnel it toward your next smallest debt instead. Continue the process until all your debts are paid.
Many people love this method because it includes a series of small successes at the beginning — which will give you more motivation to pay off the rest of your debt. There’s also the potential to improve your credit scores more quickly with the debt snowball method, as you lower your credit utilization on individual credit cards sooner and reduce your number of accounts with outstanding balances.
With this approach, you take aim at your smallest balance first, regardless of interest rates. Once that’s paid off, you focus on the account with the next smallest balance.
Think of a snowball rolling along the ground: As it gets bigger, it can pick up more and more snow. Each conquered balance gives you more money to help pay off the next one more quickly. When you pay off your smallest debts first, those paid-off accounts build up your motivation to keep paying off debt.
Plus, the debt snowball method might have a positive impact on your credit scores (especially if you opt to eliminate credit card debt first). Better credit can save you money in other areas of your life as well.
Example Of The Debt Snowball In Action
Let’s take the same accounts we used in the first example.
| Type of Debt | Balance | Interest Rate (APR) |
|---|---|---|
| Auto Loan | $15,000 | 4.5% |
| Credit Card | $7,000 | 22.0% |
| Student Loan | $25,000 | 5.5% |
| Personal Loan | $5,000 | 10.0% |
To use the debt snowball method:
- Always pay the monthly minimum required payment for each account.
- Put any extra money towards the lowest balance the personal loan.
- Once the personal loan is paid off, use the money you were putting towards it to vanquish the next smallest balance the credit card debt.
- Once the credit card is paid off, take the money you’ve been paying toward other debts and add it to your payments for the auto loan.
- Once the auto loan is paid off, take the money you’ve been paying and add it to your payments for the student loan.
Using the debt snowball method, you’ll end up paying off your accounts in this order:
- Personal Loan ($5,000)
- Credit Card ($7,000)
- Auto Loan ($15,000)
- Student Loan ($25,000)
Pros And Cons Of The Debt Snowball
The debt snowball can be a good fit if you have several small debts to pay off or if you need motivation to pay off a lot of debt. It might also be a good approach if you owe outstanding balances on multiple credit cards but can’t qualify for a new balance transfer credit card or low-interest personal loan to consolidate your revolving debt.
When you’re facing an overwhelming amount of debt, this method lets you see progress as quickly as possible. By getting rid of the smallest, easiest balance first, you can get that account out of your mind.
Reducing the number of accounts with outstanding balances on your credit reports might help your credit scores too.
The snowball method’s big downside is you might end up paying more over time compared to the avalanche method. Since you don’t take interest rates into account, you could end pay off higher-interest accounts later. That extra time will cost you more in interest fees.
3. How Do I Pay Off Debt With Balance Transfers?
When you have credit card debt, one option is to transfer your credit card balance to a different card.
If you have an account with a high interest rate, for example, you can transfer its balance to a card with a lower interest rate and spend less money on interest over time. This is like paying off one credit card using another card.
A lower-rate balance transfer card can fit well with the avalanche method. Since you can use a balance transfer to strategically reduce the interest rate on your highest-interest debt, it can buy you time to focus on the next-highest interest account. This can reduce the total interest you pay.
Many balance transfer credit cards even offer a 0% APR for an introductory period (often 6-18 months). A 0% APR offer allows you a chance to pay off your credit card balance without incurring extra interest charges.
Say you have $6,000 of credit card debt at an 18% APR. You could transfer that balance to a card that offers a 0% APR for 12 months. If you pay off your debt in that period, you’d save more than $600 in interest.
Note: You’ll probably have to pay a balance transfer fee, so be sure to run the numbers and read the fine print up front. But a few credit cards offer 0% APR balance transfers and charge no balance transfer fees.
If you have at least decent credit, you may be able to qualify for a good balance transfer deal.
4. How Do I Pay Off Credit Card Debt With a Personal Loan?
Paying off credit card debt outright is usually the smartest financial strategy. Yet, if you’re in so much credit card debt that you can’t afford to simply write a big check and the debt avalanche method seems too overwhelming or slow to manage, it might be time to consider an alternative approach.
In situations where you have several different cards (and statements, and due dates), paying them off with a low-rate personal loan can be a good idea.
The Benefits Of This Route Include:
- Consolidating Credit Card Debt With A Personal Loan May Help Your Credit Scores: Because a personal loan is an installment loan, its balance-to-limit ratio doesn’t hurt your credit the way revolving accounts (like credit cards) may. So, paying off your credit card debt with an installment loan could significantly boost your credit, especially if you don’t already have any installment loans on your credit reports.
- A Personal Loan Can Mitigate Overload: When you use a personal loan to reduce the number of payments you need to make each month, it can make managing your debts much easier.
- Paying Off Credit Card Debt With A Low-Rate Personal Loan Can Save You Money: Personal loan interest rates are often lower than credit card interest rates. If you qualify for an installment loan with a lower rate, you’ll end up paying less money overall.
That being said, taking out a loan to pay off credit card debt can also be dangerous. Follow the terms of the loan carefully, or you could just make your situation worse. Avoid this route if you don’t trust yourself to use credit responsibly. Otherwise, you could end up further in debt.
If you use this strategy, remember these key points:
1. Keep Credit Cards Open: Don’t close the credit cards you pay off, unless they have annual fees you don’t want to pay. Keep them open to help your credit utilization.
2. Cut Back On Credit Card Spending: Don’t spend any more money on your paid-off credit cards. If you must, hide them or cut them up.
3. Be A Responsible Borrower: Make regular, punctual payments on your installment loan. If you don’t, you’ll just create more problems for your credit.
5. How Do I Pay Off Debt With Debt Settlement?
Debt settlement is another option you can consider when you’re ready to eliminate your credit card debt. This strategy usually works best for people who (a) are already past-due on their credit card payments and (b) can afford to make large, one-time settlement payments to their creditors.
Debt settlement is a negotiation in which a creditor, like a credit card company or collections agency, agrees to accept a partial payment to satisfy your credit card debt rather than the full balance. You might be eligible if you’ve undergone hardships like job loss, medical problems, or divorce. However, some creditors will consider settling debts even if you don’t have any special extenuating circumstances.
When you settle your debt, you can sometimes pay 50% or less of the original balance. You may, however, have to pay taxes on the forgiven amount.
You can settle debts on your own or you can hire a professional debt settlement company to handle the process for you. If you choose to hire an outside party, you should do extensive research to avoid scammers and exorbitant fees.
6. How Do I Pay Off Debt With Bankruptcy?
When you’ve reached your limits and have nowhere else to turn, bankruptcy can offer a fresh start. You should only use it as a last resort, however, because bankruptcy can devastate your credit.
There are two types of personal bankruptcy:
Chapter 7, which often requires you to surrender some of your property
Chapter 13, which allows you to keep your property
Declaring either type of bankruptcy can be a long, expensive process — including attorney and court filing fees — and you shouldn’t take it lightly. Before filing bankruptcy, you must also seek credit counseling approved by the department of justice.
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