Are you in the market for a new credit card in 2022?
Before you fill out an application, there are some steps you should take to ensure that you’ll get approved and that you’ll get the best credit card possible for your circumstances.
You’re going to want to assess yourself from the viewpoint of the credit issuer to make sure you’re putting your best foot forward. This will help your chances of getting approved for your card of choice.
In this article, I’ll provide you with a step-by-step guide to completing your personal financial checkup and picking the best card for your wallet.
Table of Contents
Step 1: Assess Your Creditworthiness
The COVID-19 pandemic has had varying impacts on personal financial situations during recent years. And those outcomes, for better or worse, may still live in the financial decisions we’re making in 2022.
One of the harsh realities of applying for a credit card during uncertain financial times is that card issuers are less likely to extend credit to customers with lower credit scores.
So when you set out to apply for a new card, you’ll first want to understand exactly how card issuers assess your creditworthiness. That will help you decide which card to apply for.
The first step in that process is gaining access to your latest credit reports.
How To Get Your Credit Reports
You can access a free copy of your credit reports at AnnualCreditReport.com.
Under normal financial conditions, you can get your credit reports for free only once a year. But because of the pandemic’s financial impact, the three major U.S. credit bureaus are relaxing the rules. As of February 2022, the bureaus were still allowing you to pull your credit reports for free up to once a week.
Here is the step-by-step process for claiming these reports:
- Go to AnnualCreditReport.com.
- Click on “Request Your Free Credit Reports.”
- Fill out the form, which asks for your personal information.
- Confirm your identity with each credit bureau.
- After verification, you’ll be forwarded to your credit reports.
What Is on Your Credit Report
OK, now you know how to find your credit reports. But what are you looking for once you have them?
There are four types of personal information that you should monitor and verify on your credit reports:
- Personal Information: This is the information that you submit to lenders when you apply for credit. They use it to verify that you are who you say you are. You’ll want to review the spelling of your name, address, Social Security number and employment information to ensure it’s all correct.
- Credit Accounts: This a compilation of reporting from your lenders: things like your payment history on auto loans, mortgages and credit cards. You’ll also find information here about how long you’ve had each account and whether each account is in good or bad standing.
- Credit Inquiries: This section shows how many times you’ve requested a loan or line of credit. That also includes applying for credit cards. The number of times a credit inquiry is submitted on your behalf can impact your credit score.
- Public Records and Collections: Credit reports will also include public information such as collections or bankruptcies in your name. These are big red flags for a credit card company, so it goes without saying that you’re going to want to avoid poor marks in this area.
You want to make sure that your credit reports accurately reflect your financial situation, personal information and past inquiries. If you find that something is not as it should be, there are steps you can take to dispute your credit report.
Step 2: Evaluate and Improve Your Credit Score
Now that you have accessed your credit reports and know what is on them, you may be wondering how good your credit score is and whether it needs improvement.
These scores, which vary from one credit bureau to the next, are graded on a scale that ranges from 300 to 850. The closer you are to 850, the better. That’s because a score closer to 850 falls into what creditors consider the “excellent” credit bracket.
What is Excellent Credit? And Do You Have It?
“Excellent” credit is sometimes listed as the determining factor for access to the best credit cards on the market.
Each card issuer uses a different methodology for assessing the risk of a new borrower, so their definitions of “excellent credit” can vary.
Team Clark has a guide to help you define a “good” credit score.
There also are tools to help understand where your credit score falls on different rating scales. The main one is called a FICO score.
For example, here’s a breakdown of how FICO scores are classified:
FICO Score Scale
- “Exceptional” (800-850): 21% of Americans fall into this category and are typically eligible for the best credit card offers available.
- “Very Good” (740-799): This is a category that should qualify you for many credit card options at “better than average” rates. 25% of Americans are in this group.
- “Good” (670-739): This is still considered a relatively low-risk group, but people who score at the lower end of this tier may start to feel the impact of economic conditions when applying for a new credit card.
- “Fair” (580-669): A score in this area places you as a “subprime borrower” according to Experian. That means you’re going to have a hard time getting favorable perks or rates from a new credit card and may have trouble getting accepted at all by some issuers.
- “Very Poor” (300-579): If you fall into this category with 16% of Americans, your best route to credit may be through a secured credit card. Team Clark has rated the best secured cards here.
By the FICO definition, you’ll need a score of 800 or better to feel comfortable in your “excellent” credit status.
But is that 800 score really the benchmark you should be aiming for in this quest for a new credit card?
Clark says that you actually can feel comfortable in your status to apply for most credit once you reach a score of 760.
Capital One Credit Level Guidelines
Capital One, which is one of the major credit card issuers in the United States, produces a four-tier credit guideline chart to help potential applicants.
The chart shows which of the company’s cards are best-suited for applicants according to their creditworthiness.
Here’s a look at the chart from Capital One as an example of how a credit card issuer might classify potential customers.
What’s interesting is that the chart doesn’t actually list any credit score ranges.
That probably serves as a good reminder for consumers that no single credit score is a stand-alone yardstick for a decision from a card issuer.
How To Improve Your Credit Score
To improve your score, you’ll want to consider how the formula is weighted and then adjust your potential financial weaknesses accordingly.
Here’s a look at the rough breakdown for how your credit scores are determined FICO score is determined and some basic tips for improving in each area:
- Payment History (35%): The quick and easy fix here is to make sure you pay all of your bills in full and on time. If there are delinquencies on your account, make every effort to rectify the situation.
- Outstanding Balances (30%): This is the total amount you owe to all your creditors. To improve your score in this area, work on paying down the balances. That will drive down your credit utilization rate, which is a big factor in your FICO score.
- Length of Credit History (15%): This one requires time more than anything, so it’s hard to make a quick fix here. Making sure you keep your older credit accounts open and actively using them will help improve your score in this area.
- New Credit (10%): Opening a bunch of new lines of credit in a short period of time is a red flag that you may have financial issues, so make sure you request credit only when you need it.
- Credit Mix (10%): This is an evaluation of how “well-rounded” you are with your borrowing. You don’t have to go for a “one of this, one of that” approach to game this category, but it’s something to keep in mind if, for example, you have a bunch of personal loans or credit cards.
Step 3: Develop Your Proof of Income
As a part of the credit card application process, you’re almost certainly going to be required to disclose your annual personal income. And in some cases, the credit card issuer may request that you provide proof of that income.
Your latest payroll stubs should provide the necessary information, so it’s a good idea to have copies or quick access to them before you apply for a new credit card.
Credit issuers sometimes require this information to gain a better understanding of your ability to meet your current debt obligations. It can also help them set an appropriate credit limit for you as a new borrower.
Be ready to answer questions on this matter.
During my latest credit card application, I fielded a phone call from the issuer that included several income-related inquiries.
This uptick in income scrutiny is likely fallout from the increased financial hardships created by the pandemic.
Step 4: Pick the Right Credit Card
Once you’re comfortable with your credit reports, credit score and income sourcing, you’re probably ready to apply for a new credit card.
But which one should you get?
If you’re anything like me, the options are probably all around you: in your mailbox, on your email account and in advertisements on your phone and computer.
Resist the temptation to take the easy route with one of those ads. Instead, do a bit of research to find the card that fits your needs best.
You also can read about Team Clark’s top rewards credit card picks here to get a broader sense of the best cards on the market.
If you need to lower your interest on an existing balance, you may look for a balance transfer offer. But if you need to do some short-term spending and carry a balance for a few months, perhaps the 0% introductory offer makes the most sense.
If you’re going the reward card route, money expert Clark Howard suggests a straightforward cash back card.
“My favorite reward cards are ones that actually pay you money,” Clark says.
“I want cash, because nobody can tell you when you can or can’t spend your cash.”
This advice is great for everyday spending. Getting up to 2% back on every purchase with no gimmicks or restrictions allows you to map out exactly what you can expect to receive from your rewards each month.
Step 5: Thaw Your Credit and Apply
Do you have your credit locked down as a matter of personal identity security?
If you have frozen your credit as Clark recommends, now is the time to take the steps to thaw it.
Here are some guides to help you handle the “freeze and thaw” process with each of the credit bureaus:
Once you have your credit thawed, it’s time to apply for the credit card you chose in Step 4.
If you’re looking to add a new credit card in 2022, your next moves really boil down to the following:
- Pull your credit reports regularly.
- Assess them for any irregularities.
- Understand what makes your credit score move and work to improve it.
- Work to push your credit toward an “excellent” rating to qualify for the best credit card offers.
- Line up your proof of income to ensure you get the proper credit limit.
- Pick the right credit card based on your financial situation.
If you’re able to do this, you’ll be well on your way to making a smart decision on your next credit card!
Have some experience applying for a new credit card in 2022? We’d love to hear about it in the Clark.com Community!
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