According to Experian's 2016 State of Credit report, the American consumer holds an average of 2.35 credit cards. But at the same time, a Gallup poll from 2016 showed that one in four adults don't have a single credit card. Some are young adults who haven't gotten around to applying for one, while others have chosen to avoid credit cards or have taken a break from them. If it's time for you to get a credit card, here's what you need to know.
Choosing a Credit Card to Apply For
One of the nice things about the US credit card market is that it's incredibly competitive. There are dozens of cards available from eight of the largest banks, and hundreds of others that are offered by smaller banks and credit unions. And just like purchasing a new car, pair of shoes, or a couch, you need to pick the best one for your individual needs.
Here Are the Major Types of Credit Cards:
- Reward cards. These credit cards offer rewards for your spending in the form of cash back, points or miles. Some are affiliated with retailers while others are co-branded with airlines, hotels or other travel providers. A rewards credit card will have a higher interest rate than other similar cards that don't offer rewards. Therefore, these cards are best used by those who always avoid interest charges by paying their statement balances in full. If you think that you might carry a balance, it's best to use a non-rewards card with the lowest possible interest rate.
- Student credit cards. Some banks offer special credit cards designed for students with a limited credit history. These cards have lower standards for approval, but will often have higher interest rates and fewer rewards than other credit cards.
- Secured cards. Secured credit cards are designed for people who have a bad credit history. To offer these cards to applicants with credit problems, the bank requires you to make a refundable security deposit before you can open your account. But once you have the card, it works just like a standard, unsecured card.
- Small business cards. These are credit cards that are made for small business owners to separate their company expenses from their personal charges.
- Store credit cards. These cards are offered in partnership with retailers, and often feature rewards for purchases there. Some store cards can only be used for in-store purchases, while others are part of a major payment network such as Visa or Mastercard. While store cards rarely have an annual fee, they usually offer less competitive interest rates than other cards.
Ways to Apply for a Credit Card
Most people apply for a credit card online. This allows you to spend the time necessary to do all of the research you need from the privacy of your own home. There, you can pull up all the rates and fees, compare different cards and read reviews before filling out an application.
Another place that many Americans apply for credit cards is at the branch of their local bank. Typically, a banker will offer customers a credit card application when discussing their financial needs. While you won't have the opportunity to comparison shop, it can be slightly easier to apply for a credit card at a bank where you already have an account as you won't need to resupply all of your personal information.
Many people still apply for new credit cards in response to a mailing or an email solicitation. When this occurs, you can apply over the phone, or you can fill out a paper application and mail it in. You can also apply online using an offer code given to you in the solicitation. In fact, many card issuer send out targeted offers that are superior to the public offers, that only the recipient can apply for.
Finally, you can sometimes apply for a credit card in-person, outside of a bank. For example, card issuers often set up booths at airports where they offer airline cards to travelers. You might be offered an application for a sports-related card at the stadium, and store credit card applications are common at the checkout counters of major retailers.
Filling out an Application
Regardless of how you apply for a credit card, the information you need to supply will be the same. First, you will fill out your personal information including your name, address, phone number and Social Security Number. This information is necessary for the card issuer to request a copy of your credit report and your credit score.
Next, you will be asked to fill out your financial information. You will first be asked for your employment status and your total annual income. When it comes to supplying your income, you can include not just your job, but other sources of income such as investments, alimony, and child support. You can also include the income of your spouse or domestic partner so long as you have a reasonable expectation of access to these money for the repayment of this loan. A credit card application may also ask you about your monthly rent or mortgage payment, your average credit card spending per month and if you have a checking or savings account.
Next, you might be asked if you would like to add additional authorized users to your account. You can do this now or after you are approved for the card. Finally, you'll be asked to double-check all of the information you've supplied before submitting the application.
What to Do After Applying
When applying online, many credit card issuers will provide approval within a few minutes. If you don't receive instant approval, then you might have to wait a few days to be notified by mail. You still may receive approval by mail, or your application may be declined. If your application is rejected, the card issuer is required to explain why.
Most card issuers will also give you the option of calling to have your application reconsidered. During the this reconsideration process, a representative will review your application and may approve it. You may also be asked to supply additional information that can help your chances of approval, such as additional income sources. And if you already have other credit cards from that issuer, you could be approved for a new card by agreeing to close another account, or reallocate a portion of your existing credit line.
Applying for a credit card is an important financial decision, and you need to take the time to make the best choice possible. Once you know what type of credit card that you need, you can then compare interest rates, fees and benefits to find the card that's right for you.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on September 28, 2017, and has been updated.