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Applying for a New Credit Card? Check Your Credit Score First

 
By Eva Norlyk Smith, Ph.D.
October 29, 2010

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After 2009’s slump, credit card offers are back, filling up Americans’ mail boxes at the same inexorable rate as Land’s End catalogs. But whether you’re considering a mailed credit card offer or looking to apply online for a credit card, there are more reason than ever to look before you leap and take this one important step: check your credit score.

Why? Card issuers have tightened lending terms, and by knowing your FICO score, it will be easier to know which credit card offers you qualify for. This, in turn, will prevent you from wasting your time on credit card offers, which lure consumers in with attractive ‘as low as’ teaser interest rates or balance transfer offers, only to issue higher-rate cards to applicants with less-than-excellent credit scores.

Checking FICO scores is easier than ever, and you don’t necessarily have to pay to do it. If you’re fairly confident of your credit score range, simply use one of the free FICO score estimators on the web. If this is your first time checking your FICO score, you may want to invest in getting a copy of your credit score at myFICO.com.

If your credit score is lower than expected, take a careful look at your credit report. The service at myFICO.com automatically includes a copy of the credit report along with the score. Alternatively, pull a free copy of your credit report at AnnualCreditReport.com (consumers are entitled to pull one free copy a year of their report from all three credit rating agencies). If you find any errors potentially pulling down the score, be sure to correct them, and then preferably wait until they’re cleared up before applying for a credit card.

Which Credit Card Does Your Credit Score Qualify You For?

FICO scores fall into a range between 850 for excellent credit to 300 for really, really bad credit. Within this range, there are segments of excellent credit, good credit, fair or average credit, and bad credit. Here’s the range for each and which credit cards each segment qualifies you for:

Excellent Credit—Scores above 750. Only about one third of Americans, or 37.4 percent, have credit scores in the 750-850 range, according to Fair Isaac, the company that originated credit scores. If your score falls into this range, you pretty much have your pick of which credit cards to apply for. Whether it be rewards cards, cash back credit cards, balance transfer cards, or low interest credit cards, you should be eligible for the cards that offer the very best term. If applying online, look for the category of credit cards for people with excellent credit.

Good Credit—Scores between 720 to 750: Before the advent of the economic downturn, FICO scores above 720 were considered excellent credit and sufficient to get approved for credit cards and loans with the very best terms. After two years with record levels of credit card defaults and mortgage foreclosures, however, banks have tightened lending standards, so people who fall into this range generally only qualify for cards for people with good credit. Not only is the number of card options limited in this credit score range, the terms are also more uncertain. Most cards will list APRs in a range from e.g. 12.99 percent to 22.99 percent variable, and unfortunately, applicants won’t know which APR they get until they get approved for a credit card. If your score falls in the low range of good credit, to avoid uncertainty, look for cards that don’t stipulate a range of interest rates.

Fair Credit—Scores from 650 to 720: The number of credit cards for people with fair credit is far more limited, and terms are not as attractive. If you’re in the high end of the fair credit range, i.e. with scores above 700, you may still be able to qualify for some of the credit cards in the good credit category. However, if applying for a credit card offering a range of APRs, expect to get the highest APR. For example, for a credit card offering an APR from 12.99 to 22.99 percent, you’ll be likely to end up in the 22.99 percent range.

Bad Credit—Scores below 650: Scores that fall below 650 are considered subprime credit. If you fall in this category, you can take some comfort in the fact that you’re not alone. A full one third of Americans, or 35 percent, as of April 2010 had credit scores falling in this range, according to Fair Isaac. When scores fall into the subprime category, it’s usually because of some negative financial event, like foreclosures, bankruptcy, credit card defaults, high levels of credit card debt, or seriously late payments.

At this level, look for a credit card for people with bad credit, however, be wary of what you apply for. Many subprime credit cards are expensive and come with onerous terms. Your best option is to go with a credit card for bad credit which is the least expensive and which will also help you rebuild your credit, even if it means starting out with a very low credit limit.


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