Credit Card Applications: What To Know

Getting ready to fill out a credit card application? The process can be confusing, and a little bit scary if it's your first time. Who hasn't heard horror stories of people saddled with debt that they can't pay off?

Much of the decision-making process that happens after you fill out and submit an application will be completely out of your hands. The company will make their decision based on the information that you provide them, with your creditworthiness and household income being the most important factors that they will consider. It's still better to start the application process with an idea of what that process looks like, and what you might be able to do to better your chances at getting a good card with a reasonable credit limit. The following information should provide you with everything you need to know about credit card applications.

Getting Started: Before You Click "Apply."
Most applications begin online these days. You may get offers in the mail, but in those cases, the company probably already has your information. They'll be sending you a card with just a quick phone call to verify some information. For most applications, you'll need to seek out the website for the deals you're interested in and click on "Apply." However, before you click on "Apply," make sure you fully consider the details and understand what everything means.

For example, let's look at one of the most popular choices on the market right now, the Chase Freedom®. It's a "cash back" card, meaning that you'll earn back a certain percentage of what you spend using it, allowing you to redeem that money later for full cash back or apply it to your balance.

On the application, you'll see different superscript symbols next to some of the offers, such as an asterisk (*), a "dagger" symbol (†), or footnote numbers. These indicate that there are more details about those offers. That means that there are certain limitations to those offers. Always click for more information to verify that the limitations are acceptable to you!

Pricing and Terms
This section needs serious attention. It tells you how much you'll have to pay to use this card under normal conditions. This area includes things such as APR (Annual Percentage Rate), annual fee, transfer fees, billing cycle length, and penalty fees. It will also have terms and conditions that may show that particular feature limitations exist for your state or region. The company will also provide more details about their application process and approval criteria.

In Ohio, for example, creditors cannot refuse or include income in the decision on whether to approve an application. In most other states, creditors can use credit score alone.

Pay attention to these important terms:

Credit Score - Most companies will use your score as the single most important factor in determining whether they'll give you a card. Your score, which is an assessment of your borrowing history, will also determine your credit limit and will directly influence which particular product the company gives you and what APR it will carry.

Annual Fee - The annual fee is a set amount that you will pay each year. Some cards have no fee; others have fees ranging from around $50 to just over $100. Fees are often included on deals with many rewards, as the company wants to take back some of the money lost by offering those rewards. It doesn't make sense to pay an annual fee for a card unless it has a lot of rewards and you intend to both use it frequently and pay off the balance every month. Otherwise, you're taking a hit when you use it.

Purchase Annual Percentage Rate (APR) - The APR determines the amount you will have to pay if you fail to make an on-time payment. Note that the APR is only assessed for balances carried over after the end of a billing cycle, not on the amount you've used. You don't have to pay any interest on the money you've borrowed as long as you pay it back on time.

APR will often range from around 11% to upwards of 26% for others. The APR may be fixed or variable. A fixed APR is one that does not change. A variable APR means you may pay different amounts of unpaid balances during different months and years. What APR you'll pay is almost always connected to your credit score. The higher your score, the lower the APR the company will be willing to offer.

The APR you see is not the actual APR you'll pay. The Prime Rate, which is determined by the overall credit market, will be added to your APR. Most card companies will have a maximum total amount that they charge.

Transfer Fee - If you are transferring money from an old card to a new one, most companies will assign a transfer fee. That amount is often a percentage of the total amount transferred, such as 5%. Keep this in mind when making transfers.