A credit score is a three-digit number ranging from 300 to 850 that signifies whether an individual is capable of paying the money back for specific services, such as mortgage and car loans.
Financial institutions often rely on this particular number when deciding how to handle applicants who want to open bank accounts or get a mortgage or loan. The higher the credit score, the more likely they’d approve of your application. However, apart from these common activities, a credit score may also determine how institutions handle your credit card application.
How Does Credit Score Affect Your Credit Card Options?
Yes, you read that right—there’s a relationship between credit score and credit cards, or rather, the credit card application process, and it goes exactly how you’d imagine it to be.
An excellent credit score will allow you to qualify for more credit cards, while those with poor credit scores have limited options. In other words, with a low credit score, you’ll struggle to qualify for a credit card, but with a high credit score, you’ll struggle to choose a credit card type since most options are within reach, and believe it or not, there are hundreds of options available. To further clarify, here are two ways credit score matters when choosing a credit card type:
- Banks factor in your credit score when deciding on a credit limit.
As you may already know, each credit card type has a set credit limit. The limit determines how much money you can spend on your credit card. Naturally, the higher it is, the better it is for you since there are fewer restrictions on your purchases. You can increase the credit limit banks set on your credits card accounts as long as you have a good credit score.
Take note that this applies to all credit card types. Therefore, it’s always a good idea to factor in your credit score before choosing a credit card type for your purposes.
- Certain credit cards are only available to those with an exceptional credit score.
As stated earlier, those with exceptional credit scores have access to more credit card options. That’s because certain credit cards are only available if you have a relatively high score. Examples include superprime and prime cards. These card accounts tend to have more favorable interest rates and offer additional benefits.
When looking for the right credit card type for you or your business, it might be best to use tools like Compare Credit for an in-depth comparison of your available options. Remember that this is only the main relationship between credit score and credit cards. If you delve deeper into the subject, you’ll find yet another connection between the two.
How Do Credit Cards Affect Your Credit Score?
Just like how credit score matters when choosing a credit card type, your credit card also affects your credit score. For starters, how you manage your credit card accounts may influence your credit score. From how prompt you make payments to how much you spend daily using the card, there are several ways to increase, or reduce, your credit score.
Furthermore, when you close one of your credit card accounts, you’re essentially reducing the credit available to you, which in turn increases your overall credit utilization rate.
For your reference, the credit utilization rate is the ratio between your total balance and the total credit limit for all your credit card accounts. Financial advisers suggest keeping this number low since a lower rate means a higher credit score. Hence, closing credit card accounts is not advisable.
In conclusion, credit scores do matter when choosing a credit card type. Moreover, your credit card accounts may also affect your credit score. In short, they have a two-sided relationship.
So, how can you tell if your credit score is exceptional or poor?
What’s A Good Credit Score?
When you apply for a credit card, first, you need to find a financial institution. These financial institutions decide what’s a good credit score or not, so there’s no exact answer to your question. However, there is a credit score range that most institutions follow. It goes like this:
If you want to apply for superprime credit cards, also known as the highest-end cards an institution can offer, you must first show that you have a credit score of more than 740.
Of course, unless you have a fool-proof strategy, reaching this score won’t be easy. In fact, experts believe it takes at least ten years of paying on time and not having debts to get to that point. But if you do reach this point, you can have your pick at any of the credit cards a financial institution can offer. You’ll get to know what those are in a moment.
- Good credit: 670 – 739
To categorize your score as good, you must have a credit score of 670 and 739. With such a score, you should be able to apply for most cards, apart from those in the superprime level. But it should be possible to get prime cards, which are on a lower level. Still, the benefits offered by these cards should be worth the effort of increasing your score. Three years without late payments and loans should be enough to get to this point.
- Fair credit: 600 – 670
This scoring range is what most people have, especially those who’ve just started using credit. Unfortunately, with this score, you’ll often have trouble getting approved for the credit card options you typically see in the institution’s advertisements. However, you should still qualify for cards with few benefits and a pretty standard interest rate.
If your credit is under 600, you belong to the group that needs to take additional steps just to get approved for a standard credit card. In most cases, you might not even qualify.
On the bright side, certain credit card types are within reach even to those with the lowest credit score, and you’ll get to know about those types in the later sections.
Be that as it may, you must remember that credit score isn’t the only factor that matters when you’re applying for a credit card account of any type. There are also other reasons.
You Have A Good Credit Score, So Why Are You Still Getting Declined?
Sometimes, financial institutions can still decline your application even with a credit score of around 700. This is because banks won’t always rely solely on credit scores.
Below are some of the common reasons why one might get denied even with a good score:
- Too short credit history
- Too much available credit
- Recent late payments
In these cases, even with the maximum credit score, it isn’t possible to qualify for superprime cards. What are your available options when choosing a credit card type?
What Are Your Available Options?
Credit card types vary in terms of credit score requirements. Some don’t require much, while others have a bit of a high standard. Of course, the benefits are much better for the latter.
With that said, here’s a closer look at your available options for a credit card type:
This credit card type doesn’t offer any extra benefits, apart from its basic functionality. You may need a score of 600 or higher to qualify for standard credit cards.
Reward credit cards allow you to receive rewards for every transaction you make. There are three basic types of reward cards, namely (1) cashback, (2) travel, and (3) points.
Cashback refunds a flat amount or a portion of the money spent on each of your transactions. Travel cards provide travel-related benefits, such as hotel stays and free flights. Points cards give you points for every transaction, which you can redeem later for a reward. A credit score of 670 or higher might be required for this type of credit card.
- Balance transfer credit cards
Although most credit cards grant the ability to transfer your balances, a balance transfer card requires a lower rate whenever you engage in a balance transfer. The interest rates on these balance transfers can be as low as 0 percent. You may need at least a 670 credit score to qualify for a balance transfer credit card.
- Zero percent and low-interest credit cards
As the name implies, these are credit cards that offer zero percent or low-interest rates on your purchases and other transactions. However, this benefit only lasts for up to 18 months. After that, the interest may go back to normal, but it’s still an excellent choice if you want to make a large purchase at once. For this, you need at least a 690 credit score.
This type refers to any credit card that separates personal and business expenses. A business credit card can be a reward card or a standard credit card. You don’t have to own a business to qualify for this type of card, but you need a score of more than 670.
Student credit cards have additional perks like a low-interest rate on balance transfers and rewards. Since they’re specifically geared towards students who have yet to make any credit transactions, a score of 600 or higher is enough to qualify. However, you must also have the capacity to prove that you’re enrolled at a four-year university.
Secured credit cards are perfect for those with bad credit as they are accessible to anyone, even to those with a pretty bad credit history. However, you must deposit a certain amount to the card first to qualify. The credit limit for this type of card is equal to the amount you’ve deposited, although the limit may be more in some cases.
Although bearing the term prime, subprime credit cards are perhaps the worst credit card type you can get. While getting approved for a subprime credit card is easy, they typically have relatively high fees and interest rates. Despite its disadvantages, the fact that even those with the minimum credit score can apply still seems to attract people.
With this, you should now understand why most experts advise looking at your credit score first before choosing a credit card type. After all, the relationship between the two was more profound than you could’ve imagined. When selecting a credit card, remember to factor in your credit score, spending habits, and financial goals. Only then can you find the type that would serve you best.