Editorial Policy

3 things not to do when applying for a credit card

Eva Norlyk Smith Ph.D.

August 22, 2013

Whether you're after a sign-up bonus, balance transfer deal or simply a card to help you rebuild your credit, you'll need to watch your step when you're in the market for a new credit card.

Making one of these mistakes before and during the application process could leave you with nothing to show for your efforts but a denial from an issuer or even damaged finances.

1. Sabotaging your credit
What you do in the months before applying could seriously undermine your chances of getting a new credit card. If one of these slip-ups sounds familiar, consider postponing your application a few more months.

  • Using too much credit: Lenders like to see that you can handle credit without using it all. If you run up the balance on your existing cards too high, it hurts your credit utilization ratio and makes it harder to get approved for a new card. Add up all the debt on your existing cards and divide that figure by the total credit limit across your cards. If that number is above 30 percent, you're in the danger zone. Pay off some debt before applying.
  • Going credit-crazy: Each time you apply for credit, the issuer will pull your report and leave a footprint (a “hard pull” or an “inquiry”) on your credit report. Those pulls lower your credit score a bit because applying for a bunch of credit cards or loans in quick succession makes you look like you're desperate for credit — a big turn-off for issuers. If you've applied for other credit recently, leave some breathing room. Three months is the most commonly quoted rule of thumb. During that time, make sure you're regularly charging small amounts on your other cards and making payments on time. This will help you rebound from the damage of a previous pull before you apply for your next card.
  • Missing payments on other cards and loans: Late or missed payments will sink your credit score faster than you can say “FICO” and undermine your chances of getting accepted for a new credit card because they're an indication that you don't reliably pay your bills. If you've paid late in the past few months, shelve your plans to apply for a new card. The late payment will stay on your credit reports for seven years, but don't worry — you won't have to wait that long to apply for a new card. Spend the next several months demonstrating model cardholder behavior (regular charges and on-time payments) with your existing accounts, and then check your FICO scores (you can pull your FICO scores at MyFICO.com for a small fee). Once they've bounced back, feel free to apply.

2. Shooting first, asking questions later.
Think you've found the card that's a perfect fit for you? Take one last opportunity to reconsider your choice.

When it comes to applying for credit cards, many people rush into the decision, says Mike Sullivan, director of education at the credit counseling organization Take Charge America.

“Many people apply for credit cards on impulse, without really planning,” Sullivan says. “They respond to an advertisement just because it sounds good. As a result, we see a lot of people selecting the wrong card. For example ending up with a card with high interest rates, even though they will be carrying a balance.”

Before you click “Apply now,” ask yourself how you will be using the card. If you're looking to earn rewards on your purchases, make sure your past purchasing patterns actually match the rewards categories. On the other hand, if you plan to carry a balance, rewards cards aren't your best option, as they generally feature higher interest rates and an annual fee. Instead, look for a low-interest credit card or a card with a long-term 0 percent introductory period and no annual fee.

Balance transfer deals are the most tempting — and possibly dangerous — credit card offers of all. Who wouldn't want to transfer a balance gathering interest on one card onto a card that charges none? The problem is, the go-to rate (the interest rate that kicks in after the 0 percent period expires) may be higher than the rate on your original card. If so, getting a balance transfer card could cost you more in the long run.

“A lot of people end up making a balance transfer just because they have the card,” Sullivan says. “Then they don't have the money to pay the balance off before the 0 APR period expires, and it ends up costing them a lot of money in interest.”

3. Being in denial about your credit score.
If your credit score is an inconvenient truth, it can be tempting to ignore it and apply anyway. Unfortunately, getting a credit card is not like playing the lottery: Applying repeatedly won't up your chances of winning. On the contrary, as noted above, submitting too many credit applications will only hurt your credit score.

So make sure your credit is in good shape before applying. Most issuers want to see credit scores above 650. If you're going for a rewards card, though, issuers will generally want to see scores in at least the mid-700s. Save yourself a fruitless hard pull by making sure the card you want matches your credit.