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Prior to applying for a credit card, it is always a good idea to get a sense of what shape your credit is in, because your credit score is a good guideline for determining which credit card would be the best for you. If you apply for a card and are turned down, that can have a negative effect on your score. So knowing your score is a good way to keep it right where it is, if it’s good, or to make improvements if it is poor. If you don’t have access to that information, you can make a pretty good estimate by understanding the guidelines established by credit card companies.
One of the major credit card issuers using the following guidelines to approve or deny applications submitted for new credit card accounts:
People who have average credit are typically those who are holders of one loan and credit card, or have had a loan or credit card in the past. The line of credit on their current card is less than $5,000. They have been late, more than once, on paying a loan payment, medical bill or credit card payment within the past six months.
Consumers possessing good credit have had either a loan, credit card or both for a time span of three years or longer. They either currently have or have had a card with a line of credit exceeding $5,000, and they have not been more than sixty days late with any payments on made towards credit card bills, medical bills or loans in the in the last year.
Individuals with excellent credit have had a credit card or loan for five years or longer. They have a spending limit of more than $10,000 on one of their cards. They have never declared bankruptcy, nor have they ever been over sixty days late with a payment to any medical bill, loan, or credit card bill.
While these guidelines are definitely oversimplified and differ slightly from one credit card issuer to another, they can be generally helpful when attempting to assess your own creditworthiness.
Formulas have been established to translate all of the information contained in your credit report into a number known as your credit score. This numbers help lenders determine how good or poor of a credit risk you are. The typical range for the majority of credit scoring systems is 300 – 850. A higher score signifies a stronger credit history and is favored by lenders. While credit scores are a very important influence upon lenders when they are determining whether or not to extend you credit, other factors also come into play. There are not definitive rule pertaining to credit cards, but here is a rough breakdown to use as a guide:
Below 620: Bad Credit
620-660: Below Average
720-750: Very good
Over 750: Excellent
The lower your score is, the more difficult time you will have finding a creditor willing to lend to you and the higher your interest rates will be. Because there are three different big credit scoring agencies and because there are a lot of different formulas employed when determining someone’s score, no one has a plain and simple cut and dry score. Also, you score will constantly be fluctuate a information on your credit report gets updated.