Are you worried about bad credit? Think carefully about which credit cards you apply for and when you apply for them, as they can temporarily lower your credit score and make it harder to get other loans. You should also completely avoid credit cards with extremely high interest rates and fees.
Take the time to learn the answers to important questions like which credit card is best for you, what happens if you apply for the wrong credit card, and what to do after your application is rejected.
What happens after I apply for a credit card?
Credit cards often make transactions easier, safer, and more convenient. The right card also offers generous rewards, and using your credit card responsibly can help improve your credit score. It’s a smart choice if you have low credit, which FICO defines as a credit score below 580 on the general credit score scale of 300 to 850.
However, it’s important to understand that applying for a credit card may temporarily lower your credit score.
“Applying for a credit card will usually result in a hard query (a record that you’ve applied for credit) on your credit report. This isn’t a big deal on its own — it might just drop your score by 5 to 10 points for a few months — but if you accumulate a large number of hard queries, it becomes a bigger problem. More than five hard queries in a two-year period is often considered high risk and can have a significant impact on your chances of being approved for credit.”
Ted RothmanSenior Industry Analyst, Bankrate
Hard credit inquiries remain on your credit report for two years, but typically only affect your credit score for the first year.
When you apply for a credit card, a new account is added to your credit report, which can have both good and bad consequences.
“Having more accounts or a better mix can help your credit score, but adding new accounts can lower your average years of credit, which can lower your score,” explains Kendall Mead, a certified financial planner at SoFi. “And because you have more available credit, your credit utilization ratio could go down if you’re not spending the money to boost your credit score.”
If you already have a low credit score, irresponsible use of a new credit card can lower your score even further, making your credit score situation even worse.
“The biggest mistake, the hardest and the one that takes the longest to fix, is missing or late payments,” Mead adds. “To avoid late or missed payments, it’s important not to charge your credit card more than you can afford to pay.”
What are the negative effects of applying for too much credit?
Another mistake that can be harmful to people with bad credit is applying for too many credit cards in too short a time frame.
“The cumulative effect of applying for many credit cards in a short period of time can significantly lower your credit score. This behavior can lower your score by 5-10 points per application due to multiple hard queries,” warns Andrew Latham, certified financial planner and personal finance expert at SuperMoney.
For example, if you apply for five different credit cards within 12 months, your credit score could drop by up to 50 points. For example, if your score was 615 before you applied, your score could drop below 580, putting you in the “poor credit” category.
“This type of frequent application behavior should raise red flags for lenders,” Latham adds, “as it could make it seem like you’re in financial difficulty and desperate for a higher credit limit.”
If you rack up a lot of hard inquiries in a short period of time, you will definitely be considered a high-risk prospect and may be denied approval for your card.
“For example, Chase has an unofficial but widely known 5/24 rule,” Rothman points out. “This means that if you’ve opened more than five credit card accounts in the last 24 months, Chase will apparently consider you a heavy user of those accounts and won’t want to transact with you. In this scenario, even if you have a perfect credit score, you could be rejected for having too many recent accounts.”
Even if you are approved for multiple cards, having too many cards in your wallet can be a disadvantage.
“Managing a large number of credit cards can be difficult, and you may end up spreading your payments out too far and not being able to effectively earn rewards on any one card.”
Carter SeussCEO of Credit Summit
Experts recommend spacing out applications for different credit cards, loans, and other types of credit by about six months at a minimum.
“In other words, try not to have more than five hard queries in any two-year period,” suggests Rothman. “You’ll want to prioritize these, especially if you’re planning on taking out a mortgage or car loan. Mortgage lenders don’t like your credit profile changing during the underwriting process, so if you need a new credit card to buy furniture or fund renovations, it’s best to wait until after the mortgage is closed so that it doesn’t affect your credit profile during the mortgage application process.”
Keep in mind that it’s not just applying for multiple cards in a short period of time that can lower your score: getting rejected for a credit card application can also lower your credit score.
What damage can you cause by applying for the wrong credit card?
What if you apply for the “wrong” credit card? This action can come back to haunt you later. For one thing, applying for a card that you’re unlikely to be approved for can result in unnecessary hard inquiries.
“Unsuitable” cards often include premium cards that look attractive or promise great rewards. The problem is, if you already have bad credit, you’ll likely be rejected because these accounts typically require a higher credit score.
“Certain credit cards may definitely not be a good fit for you,” says Suete. “For example, some cards have very high annual fees, while others offer little to no rewards, so there’s no benefit to using them.”
Opening the wrong card can not only lower your credit score but also have other negative effects on your finances.
“For example, what happens if you impulsively sign up for a store credit card with a 33 percent interest rate and then spend too much on your holiday shopping?,” asks Rothman. “That could cost you a lot of money in interest.”
It’s a good idea to apply for and use a credit card only if you’re sure you can pay your balance in full each month and avoid high monthly interest charges, especially if you have a low credit rating.
What do I do if my credit card application is rejected?
Have you applied for a Priority Card but been denied? After you’ve been denied, find out why and file an appeal.
“It’s important to know why your loan was denied; lenders are required to tell you why they denied your loan,” Rothman says, noting that knowing the reasons can help you address such issues.
In fact, you may receive an adverse action letter from your credit card issuer detailing the reason for your denial. You can then take steps, such as improving and monitoring your credit score, and then reapply for that card and hopefully get approved.
Alternatively, you can appeal to your card issuer and ask them to reconsider the authorization.
“For example, reallocating some of the existing credit lines could give some applicants another chance at financing,” Rothman said.
Let’s say you already have two credit cards from an issuer, each with a limit of $7,500 (for a total limit of $15,000), but you want a third card. A lender may not want to give you any more credit than this, but they may be able to split the credit line by adding a third credit card so that each account has a limit of $5,000.
If your credit card application has been rejected, we also recommend checking your credit report for errors or inaccuracies and asking the three credit reporting agencies — Experian, TransUnion, and Equifax — to correct them.
“Perhaps you declared insufficient income when applying for a credit card but didn’t realise you could also include other sources of income, such as bonuses, investments or spousal income. This could also be reason to reconsider,” Rothman adds.
How to Find the Best Credit Card for Your Credit Score
Before applying for a particular credit card, do further research and, if necessary, call the issuer to find out what the minimum credit score required for approval is. Avoid cards that are above your score range to avoid unnecessary hard credit inquiries and certain rejections.
To choose the right card if you have a low credit score, research and compare cards online to find one that fits your credit score and financial situation. You can also try Bankrate’s CardMatch tool, which provides personalized recommendations. Many of Bankrate’s credit card comparison pages also have an approval probability feature that you can adjust for your specific situation.
Maybe the “best” card for you is one that offers a 0 percent introductory interest promotion.
“If approved, you’ll be able to pay off your outstanding balance in full before the preferential rate period ends, saving you significant interest,” Rothman added.
If you’re trying to establish credit for the first time, you may need to start your credit journey with a secured credit card.
“With this type of card, you give the issuer a set amount of money, which becomes the amount they can spend with you,” Mead says. “Secured cards can still help you establish a credit history, but you’ll have to have the money up front.”
Are you still having trouble finding and getting approved for a credit card?
“It may be best to stick to cash and debit cards for a while to avoid getting into debt you can’t repay,” Rothman says.
Conclusion
Don’t be discouraged if it takes you a while to find or get approved for the ideal credit card that fits your needs, and remember that a low credit score can be improved by paying your bills in full and on time, paying off balances on any revolving credit accounts, and not applying for too many credit cards in a short period of time.
