Do you think you can’t get a credit card because you have less-than-perfect credit?
You’re not alone. Nearly eight million other Americans were in the same boat last year. During the recent recession, they couldn’t get a credit card because their credit scores were low enough to be considered too risky for the banks to grant credit.[1]
But now the banks are willing to take on more customers and more risk, even those who have less than-than-perfect credit scores.
Why is that?
It happens that the default rate for credit card holders as a group is much lower than it was before the recession hit. This shows that consumers are paying off their debts and the banks like that.
Default statistics are what moves the credit card economy. The more defaults there are in a bank’s portfolio, the less likely they will want to risk giving out more credit cards. Therefore, the bank tightens its credit by changing credit requirements to screen out those with less-than-stellar credit.
By the same token, when the default rates are lower, meaning that fewer people are missing payments or not making payments at all, the bank’s overall credit card portfolio is strengthened and the bank can assume more risk. Thus, the credit requirements are relaxed to let those with not quite as good credit get cards.
Although this is a more favorable time to apply for a card and you may be getting all kinds of great offers in the mail, it doesn’t mean you will automatically get approved or that you will receive the lowest interest rate. Your credit score is still the determining factor of what interest rate you will receive, or whether you will even get approved at all.
Before applying, you might want to first try to improve your credit score.
The first step is to get a free credit report and check for any errors in your information. If there are errors, correcting these will help boost your score.
Another way to improve your credit score is to pay down as much of the balance on as you can. The lower the amount of credit you are using in comparison to what you have available, the better.
Finally, consider getting a secured card, which will offer the convenience of a plastic card with lower risk to the bank and help you establish a better credit history.
If you are granted a card, be sure and read the fine print before accepting it. Be particularly careful about the APR – annual percentage rate – the card offers, especially if your credit score is 600 or under.[2] Rates could be nearly 25 percent or even higher. Similarly, credit scores of 650-699 can attract rates from 11.99 to 21.99 percent. The banks want to minimize their risk.
Your best solution in this case is to pay off your card each month while building up your credit. This is a win-win situation for both you and the bank!
[1] http://www.creditcards.org/article/good-news-obtaining-credit-card-may-be-easier-2012-.html
[2] http://www.credit.com/blog/2012/01/6-hot-credit-card-trends-for-2012/
