Which card do you qualify for?
By Erica Sandberg
December 19, 2014
I was all over your website, and I still don't know what card to get. Is there a difference between credit card companies? They seem the same to me. My TransUnion FICO score is 709 if that helps. –Franklin
Yes, there are differences between financial institutions that offer cards. You're right, though — they can be subtle. Think of creditors as you would stores like Target and Wal-Mart, or Macy's and Dillard's. All are retailers and sell many of the same products, yet they are still distinct entities. Each has its own “flavor.”
When deciding on a new card account, concentrate not so much on the company, but the products it is offering. That's where you'll see the main variances. Most card issuers offer a wide variety of card accounts to consumers. Some are designed for people who have damaged or not yet established credit histories on up to those with excellent credit ratings.
The distinctions will be immediately apparent by checking “cards by credit” rather than “cards by issuer.” To know where you fit, use your FICO score as a guide. From the bottom (300) to the top (850):
599 and below = bad
600 – 649 = poor
650 – 699 = fair
700 – 749 – good
750 and above = excellent
By reading over the terms of the cards listed in the ratings categories, you'll quickly see that those developed for people with limited, no credit and bad credit histories tend to have APRs in the 20 percent and above range, as well as annual fees of around $30 and sometimes much more. Many are secured, where the applicant has to put down some cash to guarantee the account, but there are unsecured accounts, too. Still others are not credit cards at all, but prepaid cards similar to a debit card. Rather than be connected to a checking account, the cardholder loads up the card with cash for a fee.
You'll see fewer secured and prepaid cards in the “fair” category. The fee structure is more favorable and some come with rewards programs. Cards for people with “good” and “excellent” credit scores have very low APRs and better than average rewards programs. They often offer big sign-on bonuses, where you get major points when you get the card, as long as you spend a certain amount within a few months.
As your score is just over 700, concentrate on the accounts in the “good” credit section. Which is right for you depends greatly on your lifestyle. If you like to travel, focus on those that give the greatest deals on airfare and hotels. If you want maximum flexibility, look for the cards that give cash back. Lead a busy life and have forgotten to pay a bill lately? Some don't charge late fees, so maybe those are right for you.
Be aware that qualifying for any account also depends on your income level. If you don't have a job or you do but earn very little, you could be denied for an account in your ratings category. Also, check the other two major credit reporting agencies' FICO scores. The one you have with TransUnion may be higher than those for Equifax and Experian. Go to AnnualCreditReport.com and get your credit reports for free once a year; while you're at it, to check for any errors.
If you want a credit card that seems to be out of your present reach, analyze why your scores aren't a little better. Maybe you owe too much on other accounts. In that case, reduce them. Pay all accounts listed on your reports on time. Satisfy defaulted or collection accounts, especially if they are young and will be haunting you for years. All of these actions will cause your scores to increase.
The fact is, shopping for credit takes effort, so pour yourself a nice cup of tea and read over the terms of all the products that meet your and the creditor's criteria. Then, apply for the one that suits you best. If you approach the process the correct way, you'll almost certainly be welcomed into the new credit card company's family.
Got a question for Erica? Send her an email.