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Whether you're applying for a job, college or a credit card, it can be frustrating to play the waiting game. After you've submitted a credit card application, there's not much you can do other than keep an eye out for that approval letter.
While you wait, it might make you feel better to know what's happening behind the scenes. After you apply for a credit card, your credit will be checked and you'll find out whether or not you are approved for the card. Here's how the process works, what you can do to prepare, and how you might be able to persuade an issuer if your application is rejected.
Your Credit Will Be Checked
When you apply for a credit card, you give a credit issuer permission to access your credit reports and credit scores, and for good reason. Your credit reports and scores are how a credit card issuer can tell whether it can trust you to pay back your debts.
If your credit report shows a long pattern of responsible credit use, your credit scores will be high and you'll be appealing to a credit card issuer. On the other hand, if you do not have an established and positive credit history, you'll appear to be a high credit risk.
Soon after the issuer checks your credit, it will send a notice to the three major credit bureaus (Experian, TransUnion and Equifax) that you applied for a credit card. That will result in a hard inquiry being placed in your credit file, and it will remain there for two years. As long as the hard inquiry is on your report it will be factored into your credit scores, though to a lesser degree as the months pass.
You'll Find Out You Were Approved
Depending on your application method and the information you provide, it can take anywhere from minutes to weeks to learn if you're approved.
If you applied online or over the phone, the credit issuer will begin reviewing your application information quickly, so you'll get your answer almost immediately. If you mail your application, it can take more than a week to find out if you were approved.
Delays for all types of applications can occur if you're on the edge of qualifying. Your income or credit scores may complicate the decision, so deliberation may occur.
If you are approved, the issuer will send you a welcome letter and a credit card by mail.
You May Be Denied
But what happens if a credit card issuer turns you down? If you really want this particular card, don't panic. Take action.
The Fair Credit Reporting Act and the Equal Credit Opportunity Act require the issuer to send you an adverse action letter that explains why you were denied. Something on your credit report may have triggered the denial (such as a collection account or a bankruptcy). Maybe your credit scores are too low, your debt too high or your income insufficient. Whatever the reason, you're entitled by law to a free copy of the credit report the lender used to make its decision. If the lender used your Experian credit report, you can get your free report by going to Experian's Report Access page.
If you have new, positive activity that offsets the old problematic history, consider contacting the credit card issuer and asking them to reconsider. On second review, the issuer may find you to be eligible after all.
Your Application May Need Further Review
According to the rules in the Credit CARD Act, lenders have to assess your ability to pay any debt you can accrue with the card in order to grant the account. That means assessing what you wrote down as your income.
In general, credit card issuers do not verify what you listed as income by calling your employer, but it will compare the stated amount against factors such as your job title and location. If the number seems off, more time will be needed to determine whether you really qualify for the card.
Another delay trigger is when identity theft is suspected. For example, if the Social Security number you put down on the application isn't the same as the number on your credit report, it could be an indication of fraud. The issuer will then take extra time to review the application.
How to Improve Your Chances of Getting Approved
In the event you're denied for a credit card, take the necessary steps to improve your credit rating so you are more attractive to an issuer.
- Review and enhance your credit report. Remember, what is on your report is calculated into your credit scores, so you want all the data to be positive and correct. You may obtain a report from each of the three bureaus once a year for free from AnnualCreditReport.com. You're allowed to dispute information that shouldn't be on your credit report. If late payments are showing up, start paying your accounts on time, and if your balances on other credit cards are high, reduce your debt so it's well under the credit limit. Your credit utilization ratio—the amount of debt you're using compared with your credit limit—is an important factor in your credit score. The lower the better, but experts recommend keeping it under 30% to avoid negatively affecting your score.
- Secure your income. The income you list on your application will be reviewed, so make sure it's accurate. Your income sources may be from both your and your partner's job, any money you receive as gifts, trust fund and retirement plan distributions, and Social Security income. If you are attending college and receive scholarships and grants, you may list what you bring in from those sources, but not what you receive from student loans.
- Pursue the right credit card for you. To avoid unnecessary denials (which can hurt your credit scores), only try for a credit card that matches your credit rating. There are plenty of cards from which to choose, so read the qualification criteria for each one that sounds appealing. People with high credit scores tend to go for cards with great cash back or points-based benefits. People with less-than-perfect credit have more limited options, but still can find cards that have valuable rewards and good terms. A secured credit card might be right if you're considered unscoreable or have very low scores, since the credit lines are collateralized by cash you put down in a deposit account.
Now that you know what happens after you apply for a credit card, you can take action to make sure the process works in your favor. Checking your credit reports once a year is great, but doing so on a more regular basis is better. Pull your Experian credit report for free to see what kind of shape your credit is in. This way you'll have a better idea if you qualify for the credit card of your dreams.