Applying for a credit card is something that most people do at least once in their lives. After all, a credit card is something that you should really have to your name; for several reasons. There are always those who believe that credit cards are evil, that they cause debt and that it’s better to stay away from them. Okay; fair enough. However, it’s not credit cards that cause debt; it’s humans. It’s also not something you have to worry much about if you are a responsible human with a responsible spending habit. Credit cards are actually quite beneficial, even if there are those naysayers who refuse to believe so.
Why should you consider applying for a credit card?
- Your purchases are protected because most major credit card companies offer free extended warranties on the items that you buy automatically
- Your money is protected since you can call and report a card lost or stolen immediately and be reimbursed for purchases you can prove you did not make
- Many locations require a major credit card if you want to reserve something such as a dinner reservation, a flight, a hotel room and even a rental car (in fact, some rental car companies will not even do business with you if you do not have a major credit card to present at the time of booking)
- Credit cards help to build your credit so that you can do things like buy a house or a car one day
There are so many reasons that applying for a credit card to keep in your wallet is a good idea, but these are just the basics. However, you have to understand that when you are applying for a credit card, there are a number of things you simply cannot do. You cannot do these things because they will have an adverse affect on your finances, on the credit decision that is offered and so much more. Read on to find out what you should never do when applying for a credit card.
Lie About Your Income
It’s a terrible idea; lying. First and foremost, it’s not nice. The only time it’s nice to lie is when someone asks you how they look – and only because it’s very rude to tell someone they are ugly and look like hell (beauty is in the eye of the beholder, people). When it comes to applying for a credit card, however, lying is not a good idea. Not only is it illegal, it’s actually punishable by law to lie on a credit application. Additionally, it does you no favors. Sure, you might think that you are going to get a higher limit or have a better chance of being approved for a credit card if you lie about your annual income – maybe adding an additional zero or changing a number – when applying for a credit card; but it will not.
Let’s look at it this way; let’s say that you lie on your credit card application. You bring home an annual salary of $50,000 by yourself. You want to have a really high credit limit, so you go ahead and you state that you actually bring home an annual salary of $100,000. It might seem like it’s no big deal, but then you are issued a card by the card issuer that has a $25,000 limit. You get excited, go a little bit crazy and rack up the debt. Now your minimum payment is over $250 per month and you cannot afford to pay that, your mortgage, your car payment and your insurance and still afford groceries. Do you now see how that did not benefit you at all to lie when you were applying for a credit card?
Apply for Multiple Cards at Once
Why does this hurt you when applying for a credit card? Shouldn’t you just apply for a bunch of them and see which one is best when your approvals roll in? NO! Do not apply for many cards at once. For one, your credit score is dinged just a few points with every inquiry. Let’s say you have a 750 credit score, which is considered good. Now you go out and you apply for 4 or 5 store credit cards in one day so that you can get the big discount on your purchases with your card application. Many people do that. Now let’s say that all those inquires in a few hours time send up a red flat at the credit bureau and that you are out shopping around for money at a number of places in a short period of time.
New credit analysis makes up as much as 10% of your credit score. If you go out and start shopping around for a new card or car and a house and furniture and you’re applying for credit at all these places all at the same time, your score could drop 10%. If you have a score of 750 and the credit bureau sees you apply for that much new credit all at once, they could drop your score as much as 10%. That’s 75 points. That’s a new score of 675 – not so good.
Cosign a Loan for Someone Else
Okay, so if you are looking to apply for a loan for a car or house or something of that nature with your spouse, that’s one thing. However, if your mom or sibling or child or friend asks you to cosign a loan, do not do it. When you are applying for a credit card or some other form of credit as a cosigner, you are doing yourself nothing but a giant disservice. What happens if that person decides they are financially irresponsible and does not make their payments? Oh, that will never happen, you think.
What happens if that person loses their job and can no longer afford to pay for that car or that credit card you’re thinking of applying for as their cosigner? Can you afford to pay for it? If you are applying for a credit card as a cosigner for anyone else, ask yourself that question. “Can I afford to pay the bill on this if something happens to the person for whom I am cosigning? Do I want to?” The answer is no.
Even if that person is going to be the most financially responsible person on the planet from this point forward, this is a terrible idea. Why? Because this could come back and bite you. Let’s say you decide you want to cosign for someone. Now you are applying for a credit card, a loan for a car or a loan for a house and you have too much debt to go with your income, and you are not eligible to buy that home or that car or receive that card. You have too much debt because you are on the loan someone else took out. Now someone else is driving a car or living in a house or racking up debt with your name on it, and you get nothing. That is not a winning situation, is it?
Cancel Old Cards
If you have a credit card on your account that you’ve had since you were 18, and it’s got an excellent record – no late payments, no missed payments, always paid in full and on time – you’re doing well. So why would you cancel that? Let’s say that this is the only credit card you’ve ever had. You’re 26 now, you recently bought your first car and you want a new card that will give you a better rate just in case. You make the decision to cancel your old card since you no longer feel that it has enough rewards or miles or whatever it is you’re looking for. Now creditors look at your account and see…a car payment you’ve been making for 3 months. They do not see that card you paid off every single month and maintained a perfect reputation with for the past 8 years.
It’s gone. Now creditors see a very limited credit history; they might not be willing to give you the credit you need or want, they might not be willing to do business with you, and they might not be willing to work with you to obtain a great rate. Leave those old cards and accounts alone so that your excellent history appears on your credit report for creditors to view.
It happens; you’re applying for a credit card and then you think to yourself, “No, I’m not going to put myself on a path to poor credit and lifelong debt,” since you’ve heard so many stories of how awful credit cards are. You will continue to live your life without credit, paying cash for your vehicles and your purchases. Listen; there is not a thing wrong with paying cash for your items. However, it’s going to come back and bite you. You might have cash to spend on a used car, but do you have cash to spend on a house? If not, you need credit.
Remember this when you are applying for a credit card; it’s not cards that put you in debt. It’s you. As long as you do not make purchases you cannot afford to pay cash to pay off at the end of the month, you are never going to go into debt. You can use your card for everything you pay for all month long and then pay it off in full at the end of the month so you can earn cash back, points, miles or whatever rewards you love. The key is just to pay it off every single month. It’s 100% impossible to go into debt this way. You cannot ignore credit, however; it will do you no favors.
Ignore Checking your Report for Errors
One of the easiest and most beneficial things you can do every single year is check your credit report for errors – especially before you find yourself applying for a credit card. You might have stellar credit history, but someone made a mistake somewhere. Let’s cut straight to the chase. We are all humans, and we all make mistakes. A credit card company might have accidentally made a mistake. The credit bureau might have accidentally made a mistake. Someone might have made a mistake. Let me tell you about mistakes.
I recently realized that I have a collection on my credit report after I received a notice in the mail from a collection agency. What the heck? I have nothing in collections! However, I was shocked to see that it was my trash pickup company that was sending me to collections (yet they’re still picking up my trash twice a week on schedule). The letter I received stated that I never paid my bill from the prior quarter and that I now owe the $67.02 from the prior quarter as well as fees, bringing my total amount due to $81. They letter stated that my account would be brought out of collection upon receipt of payment.
I was panicking; and then I realized after quickly checking my checkbook that I wrote that check and mailed in on October 5. I checked my bank account and the check cleared not long after that. So why a late notice and collections? I called to ask and the best they could give me was, “Oops. I see that you are correct. Our bad. We’ll make it right,” to which I’m not sure I believe.
See? That was not my mistake. Someone else made a mistake and it cost me financially. It’s always a good idea to check your credit report at least once a year for mistakes so that you can get them fixed as quickly and efficiently as possible.
Use too Much Credit
When applying for a credit card, ask yourself how much of your credit you have already used. What we mean is this; how much outstanding credit do you have and how much outstanding debt? When you are applying for a credit card and the creditor pulls your credit report, they look at something called a credit utilization ratio. This is a number that means a lot them; and it’s one that should mean a lot to you, too. What you want to look for is that all your accounts are less than 30 percent utilized – though you should have no outstanding balances to be on the safe side.
For example, let’s say you have $40,000 in credit cards to your name and you have $25,000 in outstanding debt, and your annual income is $100,000. Now let’s say that someone else has the same amount of credit on their cards, but has only $1,000 in outstanding debt. They’re only utilizing something like 4% of their credit, and that makes them a far more appropriate and safer candidate for a new card. You would need to have less than $12,000 outstanding debt to be considered less than 30%, and now your credit score is going to be affected significantly.
The more you use of your credit, the lower your score will drop. Reaching more than 50% of your total credit limit is going to hurt significantly. Using all of it is going to kill your credit score.
Change Jobs All the Time
It might not sound like something that has any bearing on your card applications. You are applying for a credit card and you don’t realize how much your job situation matters. You might think that as long as you can prove gainful employment, you are golden. Unfortunately, you are not. While creditors understand completely when a person leaves a job and starts a new one, they’re wary of anyone who has a long history of new jobs every few months, or every year. It shows a lack of stability, and that is not something that creditors want to bother with when they are issuing their money to people that are asking for it.
What you see – a chance to make more money, work closer to home, work from home, change your insurance: These are things that might make you want to switch jobs every time you see something that’s more like your dream job come available.
What creditors see – this person is applying for a credit card with us and has had four jobs in one year. Seems to us like he doesn’t have much income stability if he’s either being fired or leaving jobs on a regular basis, so we are not going to bother with this guy. Hey, look at this one; he’s been with the same company for 12 years, left for a new company last year and has been there for 18 months already. He’s got it going on; he gets a card.
See how simple that is? When you’re applying for a credit card, don’t be surprised if someone is unwilling to give you one based on your employment history.
Apply for Subprime Loans
Why would you apply for subprime loans if you have good credit? No one is out applying for credit cards with subprime lenders unless they are so desperate that they feel they have no choice, right? Well, you might be surprised just how many people have a subprime loan without even knowing this information. There is something called a credit mix associated with your credit report. What this is happens to be the number of different types of loans you have outstanding – the same applies to credit cards. Let’s say that you received an offer in the mail from a bank you might not have heard of.
It’s not Chase or American Express, but the card company is offering you a card with a low rate and a great APR, so you apply for it. When you’re applying for a credit card with this offer, you fail to realize that this card is being offered to you by a subprime lender. They’re not going to advertise this information anymore than absolutely necessary as stated by federal laws put in place to protect lenders as well as consumers.
Retail cards from smaller locations are often issued by subprime lenders. You might have several subprime loans and cards to your name and have no idea that this is true. A good idea when applying for credit cards is to do a little research on the company before you submit the application. You want to make sure that this company is one that deals in anything but subprime lending. You can perform a quick internet search to find this out, or simply stick with one of the biggest creditors around. For example, you could just stick with Chase or American Express or Capital One or another very well known lender that does not do business in subprime loans.
When you are applying for a credit card, you cannot have missed payments. The more missed payments you have, the bigger your chances of receiving a letter in the mail that reads, “So sorry we cannot approve you for this credit card because your credit is terrible,” and that’s all there is to it. You need to make sure your payments are made on time. This might not be something that you are doing as you are applying for a credit card, but it’s something you should ask yourself when you are filling out that application. “Should I fill this out, or should I work on repairing my credit a bit first so that I can be approved for a better card with a higher limit and a lower rate?”
These are the questions you have to ask yourself when you are applying for a credit card, and they are the things you have to worry about when you are applying for a credit card. Ignoring these and making these mistakes when you are applying for a credit card on an application is going to hurt you, and no one wants to see that happen.
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