If you’re wondering why you get – or don’t get – certain credit card offers, take a closer look at your credit scores.
Credit card issuers rely on credit scores and other data to decide which credit cards you’re qualified for. The stronger your scores, the more likely it is you’ll be offered the most desirable rewards cards with the highest credit limits. Credit cards are available to consumers at all levels of credit. But to get approved for the best cards, you’ll need good credit.
Why Credit Scores Matter
A credit score is a vital piece of data for credit card issuers because it helps them understand your financial history and ability to take on – and pay back – financial obligations.
Your credit score, whether from FICO or VantageScore, is based on information in your credit report. The report is made up of data from lenders you do business with, such as the company that holds your home or auto loan or credit card issuers.
“(Lenders) all benefit from the sharing of information,” says John Ulzheimer, a credit expert who formerly worked for FICO and credit bureau Equifax. The credit report “tells a story of how risky you are and whether other issuers should do business with you.”
Positive information from a credit card company shows you paid your bills on time, which Ulzheimer says could justify giving you access to more credit.
How Credit Scores Are Calculated
There are multiple versions of FICO and VantageScore, which means there are several – likely similar – scores available to lenders. Credit card companies might use a score from either one or both of the companies to decide whether to offer you a card and which one might be most appropriate.
Both FICO and VantageScore rely on some common data points, roughly from most to least important in this order:
- Payment history. Have you paid your bills on time or do you have missed or late payments? The more recent the missed payment, the larger the effect it will have on your score.
- Amount of debt. Are you holding large balances on multiple cards and are those balances close to your total credit line? If so, that could drag down your score. Experts typically encourage consumers to keep their utilization rate, referring to the proportion of the credit line you use, to 30% or less.
- Length of credit history. What is the average age of your accounts? The older, the better.
- Searching for new credit. Have you recently opened new credit cards and applied for several new lines of credit? Both could negatively affect your score.
- Credit mix. It’s a plus to have a combination of installment loans, such as personal, mortgage and auto, and credit cards.
The Credit Score You Need for a Credit Card
There is no threshold credit score that signals that you’re ready for a credit card. Card issuers will review your score in combination with other data to determine whether to accept your application or send you an offer.
The average FICO score, for example, is 704, according to a 2018 blog post from the company, but consumers can obtain many types of credit cards if they’re well below that score. There are starter cards for consumers who haven’t established credit yet, and credit card options for fair or bad credit.
However, your choices may be limited if you don’t have at least good credit. Many credit cards require good to excellent credit to qualify. A good FICO credit score is 670 or higher, or 700 or higher on VantageScore.
TransUnion, one of the three major credit reporting bureaus, found that the number of cards issued to people in the subprime category – which is a VantageScore of 600 or below – increased in late 2018. There was a 4.3% rise in subprime borrowers getting access to credit cards in 2018, which helped lead to a record 178.6 million consumers who had access to credit cards at the end of 2018, according to company data…….Read more>>