8 ways to maximize your chances of being approved for a credit card
Editor’s note: This is a recurring post, regularly updated with new information.
When you apply for a great travel rewards card, the last thing you want is to be turned down. The sign-up bonus, the benefits and the points earned are luring you in, so you'll want to do everything possible to be approved. In this post, I'll share some tips on how to how to increase your chances for an approval so you'll be on your way to securing a new credit card in your wallet.
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How credit card applications work
When you apply for a credit card online, you fill out an application with basic information like your name, address and birthdate, as well as your qualifications for being extended a line of credit. These qualifications typically include your employment status, income and housing costs.
Once submitted, your application is processed by a computer and you'll typically receive one of two responses: immediate approval or some form of "pending" status. If you don't receive instant approval, it's not necessarily a bad thing. You can expect to receive an approval or denial in the mail within a week or two, but you don't have to wait.
You have the option to call the card issuer and ask for a decision over the phone. If you call, the representative will consider your application while you're on the line and may ask you to clarify your information — or potentially ask you some new questions.
If you don't call the card issuer, you may receive your new card in the mail within a week or two. Otherwise, you'll get a letter indicating that your application has been denied, with one of several reasons why. In fact, the law requires card issuers to provide a reason whenever your request for credit has been denied (an Adverse Action Notice).
Why your application may be denied
You won't be granted a new line of credit for a premium rewards card if your credit score isn't high enough, but the card issuer will need to be more specific in the Adverse Action Notice that it sends to you.
For example, you could be told that you have too much outstanding debt, too many recent applications for new credit or a history of late payments. Individual credit card issuers may have their own restrictions that have nothing to do with your credit score, such as Chase's well known "5/24" rule.
8 ways to increase your chances of approval
Check your credit history and score
In considering your credit card application, the most important factors for the issuer are your credit history and credit score. Most major issuers now offer customers free access to their credit score. Capital One offers its CreditWise program to anyone. These services will also provide you with feedback about the factors affecting your score.
If your credit score is not where you think it should be, you should request a copy of your credit history from the three major consumer credit bureaus to find out the details. To obtain your copy, go to AnnualCreditReport.com, the only source for free credit reports that's authorized by federal law. With this service, you can request one free copy of your credit report every 12 months from each credit-reporting company. Although from now through April 2021, the site will give you complimentary access to your report on a weekly basis.
Only apply for cards that match your credit profile
Travel rewards cards are typically only offered to those with excellent (740+) or good (670-739) credit scores. In general, the more features and benefits offered, the higher the credit score requirements will be, so don't expect to be approved for The Platinum Card® from American Express with a credit score in the low 600s.
Reduce your outstanding debt reported to credit bureaus
The first time I saw a copy of my credit report, I was outraged. It showed that I had outstanding debt on all of my credit cards, even though I was consistently paying off all of my statement balances in full and on time.
Later, I learned why my credit reports all showed me in debt: Every time a credit card's monthly statement cycle closes, it generates a statement and reports that statement balance to the three major consumer credit bureaus. At that moment, the card issuers have no way of knowing if you'll eventually avoid interest charges by paying your statement balance in full. Technically speaking, my statement balances all constituted outstanding debt, even though I was confident that the interest charges would be waived when I paid each statement balance in full before its due date.
Even if your statement balances aren't high, they still count as debt and can make a card issuer hesitant to approve you for a new line of credit. The bank is less concerned that it will be offering you yet another sign-up bonus than it is worried about over-extending credit to you and risking default.
Once you understand the bank's concerns and how your statement balances are reported as outstanding debt, it's easy to take steps to minimize what's reported. The first step is to pay off your largest outstanding balances before the end of the statement periods for your credit cards. Otherwise, if you pay a balance just after your statement closes, it won't reduce the balance that's reported to the credit bureaus that month.
If you pay before the end of the statement periods on your credit cards, you won't appear to have any outstanding debt. In addition, you'll probably experience a small bump in your credit score as your debt-to-credit ratio plummets. This is something I try to do in anticipation of applying for a new credit card and it's a vital strategy when you're applying for a mortgage or home loan.
Lower your credit utilization ratio
In addition to lowering your debt, you'll also want to maintain a high credit amount. These two numbers make up your credit utilization ratio, which can be calculated by dividing your total credit card balances by your total available credit.
Even though you want to pay off your credit card balances in full before your statement closes for the month, it is equally as important that your denominator number stays high, giving you a lower utilization ratio. This can ultimately make up about 30% of your FICO score, which makes it a pretty important factor in determining your credit score. While applying for a credit card can sometimes hurt your credit score slightly in the short term, in the long term it's actually giving you more credit, thus potentially helping your credit utilization ratio.
Another thing to consider is that when you are canceling a credit card, you are actually giving back some of your credit. This could hurt your ratio, so instead you'll want to consider downgrading to a no-annual-fee card or shift that credit over to another credit card within the same bank network.
Pay off current outstanding balances on cards from the same issuer
You can also increase your chances of approval by reducing or eliminating any current balances with other cards you have from the same card issuer. The bank can always see this kind of outstanding "debt" in real time. For example, if you were looking to be approved for the Chase Sapphire Reserve, you might want to pay off any existing balances that you have with other Chase cards before you apply. In this case, it's not necessary for the statement to close before applying; the bank will always know your current balance.
Be mindful of individual card issuers' restrictions
Some card issuers limit you to a maximum number of accounts where you're the primary cardholder, such as American Express' limit of four accounts per person. Others will limit the number of applications you can make in a certain time period, such as Chase's (theoretical) limit of one personal and one business card application every 90 days.
Include all sources of income
One common mistake people make when applying for a credit card is understating their income by not including all qualifying sources. In 2013, the Consumer Financial Protection Bureau (CFPB) issued an amendment to the CARD Act to specifically allow you to include all household income that you have a reasonable expectation of access to. The primary reason for this rule was to ensure non-working spouses and domestic partners equal access to credit.
In addition, be sure to include other eligible sources of income such as alimony, child support, disability benefits, investment income and disbursement of retirement savings.
Call for reconsideration
If your application has been initially denied, don't give up. You can contact the bank's reconsideration line and ask for a representative to manually consider your application. Before calling, try to pay down your existing balances as previously mentioned, especially with any accounts that you have from the same bank you applied to.
In some cases, I've called to plead my case and the representative immediately approved my application with no questions asked. Other times, you might have to offer a reason why you want be approved. For example, you might want to mention the features and benefits of the card you're interested in and avoid specifically mentioning the sign-up bonus. And if you didn't initially include all your sources of income, ask to have your application updated.
If that doesn't work, suggest reallocating a part of your existing line of credit with that bank. Remember, the bank's first priority is to limit its exposure in case you can't pay back your charges. By volunteering to shift your line of credit, you're making it possible for an issuer to offer you a new account without increasing its risk. Finally, you can suggest closing an unused existing account if it will result in approval for the new account.
While it's never guaranteed that you'll be approved for a credit card when submitting an application, keeping these tips in mind will only help your success rate. Credit cards can offer many benefits and rewards, so maximizing your chances will hopefully open up some new credit card opportunities for you.
Feature photo by Artur Widak/NurPhoto via Getty Images