Are you in the market for a new credit card or loan? If so, you’re probably considering applying for credit. But before you do, you should consider these ten dos and don’ts. They just might save you from a bad financial situation later.
Here are some important things you should (and shouldn’t) do before or during the credit application process.
- DO check your credit report and credit score before applying for new credit. — You should always know what a creditor will find before you give them permission to look. You don’t want to be rejected due to errors or fraudulent activity.
- DO fix any errors on your credit report before applying for new credit. — That could be anything from out of date addresses or employment information to delinquent accounts noted when they’re really up to date.
- DO shop around for the best deals on credit cards, loans, or other forms of financing. — Use credit card and loan comparison sites for quick and easy comparisons to save money on fees and interest.
- DO use online credit applications if you want a fast response. — Some will give you a near-instant response rather than waiting to hear from the lender in the mail. (But note that not all types of credit offer responses that quickly — like mortgages.)
DO come up with a budget before applying for a credit card or other personal line of credit. — Know how you plan to use that credit line or loan amount. And more importantly, know how you’ll pay it back. Having an up front plan can keep you out of debt later.
- DON’T apply for a lot of credit cards at the same time, hoping to be approved for one. — Just apply for one. If you’re rejected, ask why. Applying for a lot of credit simultaneously can make you look desperate, which is a red flag for lenders.
- DON’T immediately apply for new credit if another application was just rejected. — Find out why it was denied first, and fix any problems. If you were rejected once, chances are good that you’ll be rejected again.
- DON’T apply for a loan or credit card without reviewing approval requirements (like minimum income) first. — There’s no point in applying for a credit card or loan if you don’t meet their basic requirements. You’ll waste time, get rejected, and it’ll look bad on your credit report if you’re applying for one credit line after another due to these mistakes.
- DON’T look at a future credit card or line of credit as a solution for current financial problems. — If you’re already struggling with debt or low income, credit probably isn’t a good solution. If you can’t pay your bills now, how will you pay off any credit card debt or loans? There’s too much of a risk that you’ll make matters worse. Credit is a financial tool, largely of convenience. It’s not “extra” money.
- DON’T apply for credit you don’t need. — Along those lines, don’t apply for credit just to apply for credit. Of course, consumers don’t generally “need” credit. But you should at least have a purpose. For example, you might apply for a mortgage because you feel like you’re in a secure enough position to buy a house and settle down. Or you might apply for a credit card specifically to build credit or transfer debt from a high interest account. If you apply for a lot of credit you don’t really need or intend to use, you run the risk of being rejected when you do need or want another credit line (like that home loan).
What other credit application dos and don’ts do you live by? What would you recommend to other consumers who are thinking about applying for a new credit card or loan? Leave your thoughts in the comments.