When Is the Best Time to Apply for a Credit Card?
For many things in life, timing is everything. That's especially true of credit cards. Applying for a credit card at the wrong time could mean you're denied. But time it just right and you could not only be approved, but reap major rewards, too.
The best time to apply for a credit card is when you're confident you'll be approved for a card that can help you make a large purchase, build your credit, consolidate debt or take advantage of valuable rewards. Here's what you need to know about when to apply for credit cards.
The 7 Best Times to Apply for a Credit Card
As soon as you turn 18. When it comes to building credit, the best time to start is as soon as possible. The length of your credit history accounts for 15 percent of your FICO credit score. "The longer you borrow responsibly, the sooner you build credit," says Justin Pritchard, a certified financial planner with Approach Financial in Montrose, Colorado.
He says that by establishing credit early, you'll be able to get approved for larger loans at a lower cost in the future. "If you need a mortgage or auto loan, you can get better rates and you have more options with a solid credit history," he says.
One thing to keep in mind, however, is that it might be tougher to get approved for a credit card at such a young age because of provisions in the Credit CARD Act of 2009. Under the act, credit card companies are required to verify that young adults have the income needed to regularly pay credit card bills.
Lee Huffman, a credit card and travel expert at personal finance blog BaldThoughts.com, says these changes to credit card rules mean young adults might need to wait to apply until they have solid income or a stable job history. If you don't have stable income, there are other options. "In that case, they should be added as an authorized user to an adult's credit card to start building a positive credit history," he says.
[Read: Rewards Credit Cards.]
Your credit is in good shape. There are credit cards available for all credit levels, but the best offers are reserved for people with good or excellent credit. It's not a good idea to apply for a top-tier credit card unless your credit score is in the good or excellent range, since you likely won't be approved otherwise. Each time you apply for a credit card, you incur a hard credit inquiry; just one hard inquiry has little to no effect on your credit score, but multiple inquiries within a short period can hurt your credit.
A credit score above 670 is considered good and will help your odds of approval for most cards offered by major issuers. However, some cards are designed for those with fair or poor credit, and you may be approved for them even with a less-than-perfect credit score. Even so, your credit score is just one of several factors credit card companies consider when you apply, and good credit isn't a guarantee you'll be approved.
You need to build or repair your credit. Sure, you should wait until you have good credit to apply for the best credit card offers. But if your credit isn't great or your credit history is limited, a secured credit card can help. "Applying for a secured card is another avenue you can take, as secured cards are usually offered to individuals who are in the process of building, rebuilding and repairing their credit," says Shanté Nicole, an author, financial educator, certified credit consultant and founder of the nonprofit Financial Common Cents.
With secured credit cards, you pay a deposit up front that serves as collateral. Like traditional credit cards, you'll pay your credit card bill each month, but having the deposit on hand in case you don't make your payments reduces the lender's risk, making it easier for you to qualify. Secured cards also tend to have smaller credit limits and more fees, so it's important to research your options. You should also verify that card activity, including monthly payments, is reported to the credit bureaus.
You're planning to make a big-ticket purchase. Whether you need to replace your water heater or are planning to take your family on vacation, a credit card with the right perks could significantly reduce the cost or help you save on interest.
For instance, some rewards credit cards offer sign-up bonuses to entice new customers, which can be worth hundreds of dollars. Not only will charging a major purchase to your new card help you meet the spending requirement often necessary to earn the bonus, but you can also then apply that bonus to the balance for cards that offer cash back or statement credits as a reward. Just be sure your sign-up bonus isn't taxable, which is rare, but possible.
[Read: Balance Transfer Credit Cards.]
Another possibility is that a new card you're eyeing offers an introductory zero percent annual percentage rate. Usually, introductory APRs last 12 to 18 months, during which you can focus on paying off your purchase interest-free.
However, keep in mind that these offers aren't available to everyone. You will likely need a strong credit history and score to qualify.
You have high-interest debt. A zero percent APR can also be helpful when you have outstanding debt and can take advantage of a balance transfer offer. Some card issuers offer the option to transfer a balance from another card company to a new card and pay zero percent APR during an introductory period. This allows you to pay off high-interest credit card debt faster, since your full payment goes only toward the principal balance when you're not paying interest. The only drawback is that balance transfers usually require a fee, typically 3 to 5 percent of the balance, so you'll need to calculate whether you still come out ahead.
You've been referred. Another perk that some credit cards offer is a referral bonus. If an existing customer refers a new customer who signs up for the card, usually through an email invitation or personalized referral link, both may be awarded a bonus in the form of rewards points, cash back or both. If you have a friend or family member who can refer you to a card you're interested in and have a good chance of qualifying for, it might be worth applying for it.
You've been preapproved. As mentioned above, applying for one credit card after another can be detrimental to your credit. But how can you know whether you'll be approved for a credit card? "Most banks offer the ability to check for preapproved offers without a hard inquiry," says Huffman. Though preapproval doesn't guarantee that you'll actually get the card, since the issuer will need to run a full credit check once you officially apply, it does help narrow the pool of cards you should pursue.
[Read: Cash Back Credit Cards.]
Increase Your Odds of Approval
Getting your hands on a credit card isn't only about applying at certain opportune times. There are also a few things you can do to ensure your credit card application isn't denied when it does come time to apply.
-- Check your credit report for errors. Before applying for any type of credit card or loan, it's a good idea to review your credit reports for errors, according to Pritchard. Mistakes such as an account being reported twice or a fraudulent account in your name could lead to a lower credit score. You can check your credit reports from all three major credit bureaus once per year for free by visiting AnnualCreditReport.com. If you find any errors that have a negative effect on your credit score, be sure to dispute them before applying for a new credit card.
-- Pay down outstanding balances. The amount of debt you owe in relation to your total available credit -- your credit utilization ratio -- accounts for 30 percent of your credit score. Reducing your outstanding balances can increase your score fairly quickly. "One of the things I do before applying for credit cards is to pay my balances in full before the statement date," says Huffman. "This lowers my utilization ratio and gives my credit score a boost."
-- Know the bank's rules. Another step you should take, says Huffman, is review the rules of the bank and credit card you are applying for. "For example, if you know that you've opened more than five new credit cards in the last 24 months, don't apply for certain Chase credit cards. You won't get approved," Huffman says.
-- Become an authorized user first. Finally, if you've never had any type of credit before or your score is in particularly bad shape, it might be a good idea to be added as an authorized user on someone else's card first. "One way to increase your chances (of being approved) is to become an authorized user on someone's credit card who has positive payment history, a good utilization percentage and long length of credit history established," Nicole says. Their positive credit activity will help boost your credit, too. If the primary cardholder is concerned about your having access to their card account, know that you can be added as an authorized user without being given an actual physical card or making purchases.
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