Your Credit Score is a Reflection of the Risk that a Lender Faces

  • 4 min read

To qualify for a credit card, an applicant must have a credit score acceptable to the lender that provides the line of credit. This score is a reflection of the risk that a lender faces in providing a new credit card.  A credit score is an incredibly complex set of data that are ultimately reflected in a score that ranges from 300-850. In reality, a credit score can be summarized in one word: “character”. Your reputation, when combined with your overall income and your ability to absorb debt, will be the greatest determining factors as to whether or not you will be approved by a credit card lender.

What Are the Factors Involved With Your“ Character”?

Honesty is always the best policy when it comes to the world of credit. Honesty may be defined as a person’s ability to pay their bills on time. When this happens over a long period of time, it tells a lender that you work hard to make sure every debtor gets the money they are owed at the time that they owed.

Here are other areas that are commonly considered during the approval process.

  • How long a customer has lived at their current address is a reflection of stability.
  • The length of time employed or the consistent growth in self-employment that shows income stability.
  • Effectively using credit in the past in various forms, such as a car loan, shows lenders that you have payed off debt in the past.

What Are Some Important Questions to Ask Before Applying?

If your credit score is in the below average range of 650 or less, then there are some important questions you’ll want to ask yourself. The first would be this: is it really necessary to have a new credit card right now?

If yes, then consider your total income and your assets. If current living expenses are eating up a majority of the earned income , then a lender will be less likely to approve a new credit card. Even the number of dependents that a household has can affect the approval process – more dependents equates to higher costs and less money to repay credit card debt.

How may I boost my credit score?

If you already have a credit card, then increasing your credit card spending limit is one of the easiest credit score boosts you can get. It usually takes about 6 months of consistent use without any missed payments to be able to request a spending increase. Many people, may qualify for an increase and never ask for it.

Increasing the credit limit may be achieved in several ways:

Through Automatic Increases

It is very common for credit card lenders to review their customer accounts. Part of this review process determines what an accurate level of credit should be for that consumer. Many times, with good credit, a lender will simply offer a raised spending limit on a credit card by giving a notice to the consumer.

Through Requested Increases

Credit card holders can also request their own spending limit increase, either over the phone or through their online account. You can’t generally request a spending increase by sending an e-mail request to a lender’s customer service department. When a customer is requesting an increase, the credit card lender treats this as a new application for credit. It may result in a hard credit inquiry, which means it can impact a credit score in a negative way – even if the spending limit increases are not approved.

Through Card Limit Transfers

Some cardholders have multiple credit cards, but they are issued by the same lender. As long as the two credit cards are with the same lender, generally the spending limits can be transferred and combined to one of the cards. For example, if you have two cards that have $3,000 credit limits, you could request that $1,500 from one card be transferred to the other card so that you have a $4,500 limit on one card and a $1,500 limit on the other card.

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Christopher - BSc, MBA

With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.