When you’re applying for a new credit card or bank loan, lenders and banks often go through a series of steps in order to determine if an applicant is creditworthy before lending money. If you don’t know how to qualify for a credit card, or how lenders and banks evaluate whether or not an applicant is considered a financial risk, follow these steps to determine what your credit status is and learn what you can do in order to quickly boost your credit rating.
Your Annual Salary Doesn’t Guarantee You’ll Get Approved
A high annual salary will not automatically qualify you for a new credit card.
What tends to make lenders and banks trust an applicant enough to lend them money is all about how creditworthy they are. Here are some factors that a lender or bank will look for in order to determine whether or not you’re a low risk.
What are Your Spending Habits Like?
You may be surprised to learn just how much info a lender or bank is able to dig up regarding your payment history. If you’re always late paying your bills or if you’ve missed payments, a lender or bank will automatically consider you a high risk. Paying your bills late will affect your chances of getting approved for a loan or new card. Fortunately, you can always rebuild your payment history.
Rebuilding Your Payment History
After you settle all of your debts, the record will remain for two to seven years, after which it will be removed from your credit history. If you have a poor payment history and you’re planning on applying for a bank loan or a new card, then you can begin to build a good payment history by paying all of your bills on time for two years before you apply.
If you’d like to learn more about repairing your credit, click here to look at our ultimate guide.
Your Debt Amount
Even if you’re earning a six-figure salary, if you’re weighed down by a lot of credit card debt it can be difficult to convince a lender or bank that you’re a low-risk applicant.
Your debt shouldn’t make up more than sixty percent of your net income. The less debt you owe the more likely a lender or bank will approve your credit card or loan application.
A lender or bank won’t usually lend money to applicants with no credit history. They often view people with a long credit history as low-risk borrowers.
A person’s credit history will include the number of years they’ve had any financial credit including credit cards or loans, in addition to the average age of the credit accounts.
What is A Credit Mix?
The term credit mix refers to the type of credit a person has under their name, including student loans, credit cards, car loans, installment loans, and mortgage loans. Having a variety of credit types can make you look good in the eyes of lenders and banks, but you shouldn’t apply for credit just for the sole purpose of having a mix in your credit record. A credit mix is good to have, but it isn’t exactly a major factor in terms of whether you’re considered a high or low risk to lenders and banks.
Applying for Credit Cards
When you’re applying for a new card, you need to be careful regarding how frequently you do so. How many cards have you applied for in the last year? Or even in the last six months?
Keep in mind that opening several credit accounts in a very short period of time can make lenders and banks consider you a high-risk applicant. And the reason behind this is simple. A lender or bank may simply assume that you’re having cash flow issues, which is why you seem so desperate to get new lines of credit so quickly.
CTOS and How They Can Help
CTOS isn’t a blacklist, contrary to popular belief. CTOS also doesn’t offer recommendations regarding a person’s financial status to lenders and banks. It merely provides and compiles credit information that’s in accordance with the 2010 Credit Reporting Agencies Act.
Many lenders and banks tend to refer to CTOS to determine whether or not they’ll approve an applicant, but the decision really lies entirely in their hands. Each lender and bank will have their own strategies, business policies, and risk preferences.
Basically, CTOS is a private company that will provide these lenders and banks with transparency between them and the applicant, in order to help to improve an applicant’s chances of getting approved. It really works both ways. While a lender or bank can access an applicant’s credit information, the consumer can also use these services in order to get a realistic view of where they stand in the eyes of the lender or bank and to learn what they need to do to order to be considered a low-risk borrower.
Consumers can do a self-check on their credit history by signing up for an account online.
You’ve applied for a loan or credit card and you’ve been turned down. Now what?
As we’ve mentioned, even if you pay off a debt it can remain on your credit report for a period of two to seven years. However, you can also contact the collection agency or creditor and request that they remove the debt from your credit report. Some companies are willing to do this, while others aren’t.
Another thing we recommend doing is monitoring your credit on an ongoing basis. You’d be surprised to learn how many consumers go several years without checking out their credit report, only to be stunned by their amount of debt. You can get a free annual credit report from all three credit bureaus including Equifax, TransUnion, and Experian.
If you’re deep in debt, we recommend staying on top of your credit report. Sign up for credit alerts and be sure to monitor your credit on a monthly basis.