Applying for a credit card should be a pretty straightforward process. You just fill out the application and then wait for the card to arrive, right? While this is technically true, it doesn’t mean you should sign up for the first card you come across. Before you apply, it’s important to consider many factors, such as your credit score, what kind of card you want, and your odds of being approved.
There may be dozens of cards out there, but generally speaking, they fall into three main types of credit cards:
It’s important to consider what kind of card you need before you apply. It doesn’t make any sense to apply for a travel rewards credit card if you don’t like to travel. If you have bad credit, applying for anything other than a secured card means you’ll likely be declined.
When applying for a credit card, you need to be realistic about what you’ll qualify for. In most cases, you need a good credit score if you want to be eligible for an unsecured credit card.
You can check your credit score directly through Equifax and TransUnion, the two credit bureaus in Canada. If your score is at least 660, which is considered a good credit score, you may be more likely to be approved.
The other thing to consider is your annual income. The better the credit card you’re applying for, the higher income you’ll need to qualify. For example, Mastercard offers three tiers of credit cards with the following income requirements:
With your credit score and income in mind, you can start looking at cards that might be suitable for you.
When you apply for a credit card, the issuer will request to review your credit report. That request is recorded as a hard inquiry, which generally results in your credit score dropping 10 points. While this drop may worry some people, your score will eventually go back up if you pay your bills on time. That said, applying for multiple credit cards simultaneously could be troubling as your credit report would show numerous credit inquiries. Some lenders, including mortgage providers, might be concerned about you trying to access a lot of credit in a short period.
Applying for a new credit card can sometimes help boost your credit score. For example, if you have a credit card with a $3,000 limit and your typical balance is $1,500, you would have a credit utilization ratio of 50%. If you applied for a new card and were approved for a limit of $6,000, you would now have a total of $9,000 in credit available. As a result, your utilization ratio would drop below 30%, to 17%. This is significant because your utilization ratio is one of the major factors that determine your credit score.
Once you’ve decided what kind of credit card you might qualify for based on your needs, credit score, and income, the rest of the process is easy. It’s worth noting that you need to be truthful on your application, or your card could be cancelled even after you’re approved. Follow these steps to apply for a new credit card.
While you can apply for more than one credit card at a time, we don’t recommend filling out multiple applications in a short period, as it could affect your credit score. Ideally, you should wait about six months between credit card applications.
Once approved, you’ll usually have your card in hand within 14 business days, though it depends on your issuer and the mail. If your application is declined, you could call the financial institution to find out what happened. In some cases, they may not have been able to verify your information. Confirming a few details could help you get instantly approved.
When your card arrives, activate and sign it right away — until you do, it’s a useless piece of plastic. The activation process will usually involve setting up security info, such as your PIN and login details.
As you start using your new credit card, remember to spend responsibly and manage your payments so you don’t end up in debt.
Barry Choi is a personal finance and travel expert. His website moneywehave.com is one of Canada's most trusted sites when it comes to all things related to money and travel. You can reach him on Twitter: @barrychoi.