For many people, applying for credit is a nervous process and one that comes with all sorts of concerns. Don’t worry; you’ll find all the important considerations in this guide. Before applying for credit, keep these in mind, and you won’t go far wrong.
Your Credit History/Score
For those with a poor credit history and therefore score, it’s not always wise to be opening a new line of credit. Often, the application process alone worsens your credit score further, and it provides yet another credit source to manage (as well as all the others!). At the very least, choose credit with an interest rate of 0% because this won’t add to your debt.
While some companies offer no interest for a few months, others go beyond 18 months. Before applying for credit, make sure you understand the terms because one small mistake can worsen your credit score even further. You also need to understand that many companies use the Credit Sense commercial credit software, or similar credit checking applications to research it’s applicants. Visiting sites like this to gain a better understanding about how credit is pulled and how it can impact your score will be necessary as you navigate your loan.
Additionally, we recommend considering your application history. If you haven’t applied for credit for several years, the impact on your credit score is negligible. However, it’s a different story if this will be your tenth application in as many months. Often, the credit reporting bureaus will assume you have financial issues from this behaviour.
Your Purpose
Another critical thing to consider when applying for credit is your own purpose. If you’re opening another new line of credit to pay off previous debts, it’s best to think of another solution. Soon enough, the zero-interest period will end, and you’ll have another source dragging down your credit score.
On the other hand, you also need to think about your purpose to find the right source of credit. These days, banks offer a diverse range of credit cards, so you should find one that suits your needs.
The Fees
Sadly, this is something that trips many consumers up every single year. They think they have the best source of credit and celebrate when the acceptance letter comes through the door, but then soon fall into trouble after noticing the fees attached to the card. Thanks to changes in the regulations in recent years, banks and other lenders aren’t allowed to hide fees in small print. Instead, they need to state them in a standard format.
Either way, understand the fees attached to the credit before applying. For example, this includes:
- Foreign transaction fees
- Annual fees
- Balance transfer fees
- Interest rates
The Interest Rate and Annual Percentage Rate (APR)
We’ve just mentioned it, but you cannot forget to look at the APR and interest rate of a credit card. With both, the card may come with a low introductory rate to entice new customers. While this is great fun at the beginning, it soon brings trouble if you’ve been borrowing on the card and can’t afford to pay off the balance. Soon enough, you’re getting hit with all sorts of fees and fines.
The Penalties and Rewards
Finally, it’s important to consider the rewards and penalties because this encourages you to have a full understanding of how the card works. As we saw in the charges section, penalties vary, and some lenders increase the interest rate after missed payments.
Elsewhere, some credit card companies offer rewards for sensible customers. While some offer cashback rewards, others go for travel rewards. Again, it pays to choose credit that meets your needs and the way you like to use the card.
Summary
If you keep these considerations in mind when applying for credit, you’ll be in a good position. If you’re experiencing money troubles, try to find a more sustainable solution. If not, find the credit card right for your intentions!