How to apply for a credit card

Happy Election Day!!! Before reading anything I post, please make sure that you have voted for whom you think should lead America in the next 4 years.

OK, down to business now.

My first 2 posts explained why you need a credit card and briefly described the proper way of using a credit card. Assuming that you’re convinced that you should apply for your first credit card, there are many ways you can apply. Here’s what I did.

On January 7th, 2012, I met with a personal banker from Bank of America in downtown Seattle, telling him I wanted to apply for my first credit card ever. As expected, he advised me to apply for a fully secured card. For a Bank of America’s secured credit card, you can deposit anywhere from $300 to $10,000 to establish a credit line. This is money that will stay at the bank, accruing no interest. Basically until you close the credit card account, or request a product change to another card that does not require a deposit, you do not have access to this money. What’s nice about Bank of America, as well as certain other banks, is that their secured card automatically ‘graduate’ to a regular card after one year of proper use. As a result of the graduation, you get your deposit back, and have your card converted to a regular card with the same credit history. If you managed your secured card well, this good history will be reflected on the credit account of the regular card.

I did not want to lend too much money to Bank of America for free, but I needed a decent limit to not restrict my purchases on the card. I decided to put in $2,000. Turns out this was a wise decision. The more debt you manage well, the better your credit history looks. When I recently applied for another BofA card through my personal banker, he told me that the high credit line on my secured card was helpful for getting a high limit on my next card. In fact, I was approved for a $5,000 credit limit, a limit that I will not hit any time in the foreseeable future and that confirms my status as a prime borrower. This was only 9 months after I obtained my secured credit card, which doesn’t graduate until January next year.

If you already have a bank account, my recommendation is that you apply for your first credit card through them. They will tell you whether you should apply for secured card or a regular card It’s a million times easier to be approved for a credit card if you already have a financial relationship with the creditor. My friend friend of mine in Seattle was approved for a $6,000 limit credit card, his first one, by Wells Fargo, a bank where he’s been having a checking account for years. Another friend of mine in New York applied online for his first credit card with TD Bank, where he keeps his money, and was instantly approved. They had already had a credit history through auto loans and personal loans, but for the first credit card, they got excellent ones!

If you want to explore other options, some creditors have products targeted specifically to people without a credit history such as students and foreigners. 2 such creditors that I can think of are Discover and Capital One. They will give you a card with a low credit limit to start, usually $300-$500, and an interest rate so high that I don’t even want to tell you, since I know you’ll never make yourself pay interest on such a card, right?

To apply for a card, you need at least a Social Security Number. If you are an international student, I assume you already have one. If not, you need to get one; otherwise, no jobs and no credit cards will be available to you. Next, you need to provide a physical address so that the creditor knows that they can grab hold of you if you fail to make minimum payments. If you’re a student and your mailing address is a mailbox number, you should talk to the creditor before you apply; this is another reason you should get your first card with your bank. Then, you need to provide your income amount unless you’re a student. And finally, you need to provide other contact information. This is what the typical credit card application looks like. Certain creditors may ask for other information, such as your citizenship, as well.

If your application is approved instantly, congratulations! Otherwise, you can either wait to get the result in the mail, or call the creditor to inquire about the application status. You might be rejected, in which case you should ask them to re-consider your application; the credit analysts will ask you several questions, and if they are happy with your answers, will manually approve your application. This happened to me last month when I applied for my second BofA credit card. The credit analyst was surprised I had been denied in the first place, and quickly approved my application after verifying my banking relationship with BofA. Hopefully you don’t get rejected at  all, but if you do, give the creditor a call. The rate of success with reconsideration calls is very high.

There are several things I would like to remind you before you apply for your first credit card is that you have to treat this card very carefully. Always pay the balances in full before the due date. Your credit history is in a fragile state; any mistake will result in serious repercussions. You should also look for a ‘prime’ creditor, basically any reputable commercial bank, such as BofA, Chase, Wells Fargo and Citi or other traditional credit card issuers such as Discover and Capital One. Stay away from sub-prime lenders such as Orchard Bank, unless you consider yourself a sub-prime borrower, such as one who has just filed for bankruptcy, or one whose income is below poverty line. Having a sub-prime credit card on your credit history may raise a red flag to lenders.

You may take into account the annual fee when considering what card to apply for. While some lenders such as Orchard Bank will charge an exorbitant annual fee for a non-reputable card, keep in mind that it is sometimes worth it to pay a higher annual fee for a more reputable card. For example, I consider the value of my BofA secured card a lot higher than the $39 annual fee I paid on it. It helped me build a clean credit history and obtain subsequent credit cards. It is going to graduate in 2 months, giving me back my deposit. It has rewarded me with $200 in cash back so far this year. I might’ve been able to get a secured card with a lower fee elsewhere, or even a regular card without an annual fee, but I would not have got that $200 in cash back. And I plan to pay this annual fee only once; when my card graduates I will request a product change to a card without an annual fee. $39 is a minimal investment towards a much more valuable return in the future: a perfect credit history. And on top of that, cash back and other perks that I have covered in my first post.

I realize this is a long post. Think about it as another minimal investment towards your future goal of personal financial success. By the time you’ve read my first 3 posts, I hope you feel ready to apply for your first credit card. Good luck on your application! If you have any questions, please leave a comment and I will respond to you as quickly as I can.

In my next post, I will cover what you need to know after you obtain your first credit card.

Oh, and don’t forget to vote!

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