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Why Is My Credit Standing Important To My Credit Card Search?

Growing up, the number that most influences your life — that governs what classes you take, whether you go to that party, which colleges you're accepted to, perhaps even why you get your first job — is your GPA.

Soon after graduation though, GPA loses its sway and is packed away in a basement box with your transcript and old textbooks.

In its place, a new number rises to the position of big influencer — this time for the remainder of your life.

Enter your credit score.

Your credit score is not something to ignore.

It will impact your ability to get a car, home, killer credit card — perhaps even who's willing to date you.

Yet, according to a survey by the Federation for Credit Counseling, over 60% of people don't review their credit report, while 55% don't even know their score.

Worse, according to a study by the Federal Trade Commission, one in five American consumers — about 40 million people — has an error on their credit report.

These errors can easily hurt your score, indicate your identity is compromised, sink your savings, leave you in credit card debt, and limit your future lifestyle choices, like the mortgage or loan you need for your family's next dream house or car.

The point is, there's no reason you should take your credit score any less seriously than you took your GPA.

In fact, you probably should take it more seriously considering it will be with you for the rest of your life!

If you're thinking about getting a new credit card, before you dive in, it's important to have a solid foundation of knowledge about why your credit standing is important to your credit card search.

Here's everything you need to know about why your credit standing is important to your credit search

1. Behind the Scenes of Your Credit Score

The guide behind the shiny new credit card that's under the spotlight is the credit score backstage.

Credit card issuers will use your credit score to determine the type of card you'll be approved for.

You'll use it to get a mortgage or loan in the future.

What's your credit score

To take advantage of your score, we'll take you through the ins-and-outs of what it is and how it works.

Your score is the primary data point for credit card companies.

Your credit score collects and calculates data on how you've managed past debt to predict your likelihood of repaying a future credit line — like a loan or credit card.

The higher your score the better you look to potential creditors.

Everyone starts with no credit and overtime more than likely builds a credit history, whether they mean to or not.

The higher your score, the less of a credit risk you are, which translates in real terms to more options and betters interest rates and fees when applying for loans, insurance, and credit cards.

The credit bureaus mix the formulas behind your score.

There are three major credit bureaus that calculate and track your credit score — Equifax, TransUnion, and Experian.

Each offers its own unique credit score as well as a standardized FICO score to hundreds of millions of consumers worldwide.

Unless you're a number wiz, you really only need to pay attention to your FICO score, since the majority of lenders will only look at that number when considering you for a credit line.

Score criteria are calculated into five important parts.

As we noted, from worst to best, a FICO score ranges 300-850.

The recipe used to cook and calculate your unique three-digit FICO score has five standardized criteria.

To boost your score into the "excellent" seven range, the first step is understanding FICO's formula:

Payment history is the most important part (35%).

Do you pay your bills on time? If so, great!

This the most important part of your score.

Late payments over 30, 60, or 90 days can show up on your credit report and stay there for years.

Worse, if you don't pay up, your card issuer will likely send your bill to a collections agency, which will hound you for your overdue bill and even work to repossess any assets you might have — say a car or home — hurting your score and pocket even further.

Amounts owed is the balance you shouldn't keep (30%).

How much of your credit limit are you using?

All of it?

Even half?

You might not be aware you're likely hurting your credit score.

Credit utilization — or the percentage of available credit you're using — is perhaps the least known and second biggest factor influencing your score.

Nathan Crabtree, writing for Loan Lab, says that "[a]s a rule of thumb, your credit utilization shouldn't exceed 30% of your available limit. It's also a good idea to keep individual card balances below that same 30% threshold."

Practically, that means if your credit limit is $1,000 you shouldn't be spending more than $300.

Length of credit history will always be on the up-and-up (15%).

When did you start building credit?

Consumers who have managed credit successfully over a long period of time — by paying their bills on time and keeping their credit utilization under 30% — are considered a safer risk to issuers.

On the other hand, someone with little to no credit experience is more of an X factor.

Still, a long credit history is only good if it's not riddled with late payments and overdue fees.

One thing to remember is that debit cards have nothing to do with your credit because they're strictly tied to your checking or savings account.

Credit mix means you should consider a loan (10%).

What kinds of credit do you have?

Types of credit include secured loans, like car loans and mortgages, and unsecured loans like personal loans, credit cards, and student loans.

Mortgage debt in the U.S.

Lenders consider having a variety of credit better than only having one or two types.

New credit doesn't mean jump in head-over-heels (10%).

How many cards have you applied for recently?

You might have an urge to jumpstart your credit build as fast as possible.

Don't!

Take a breath and proceed carefully.

Applying for even a couple of credit cards within a week, month, or even year is often a red flag for lenders.

2. How Good Credit Frees You

There's a host of good reasons to build a good credit score.

Here are the various areas of your life that will be affected by your credit history.

Home loan providers will exploit your mortgage APR.

For many people, getting ready to buy a home is when they become most concerned about their credit score — and for good reason.

Not only is your score one of the major factors issuer's consider when determining whether you'll qualify for a mortgage, but it can also affect the interest rate you'll get, according to Experian.

Insurance carriers look at your score when you apply.

Your credit score can also affect your premiums for health and car insurance.

This is because research backs up a correlation between a low credit score and the likelihood that you'll file a claim.

Therefore, a lower score would make you a more risky customer in the eyes of insurers.

Employers might not hire you if your score is bad.

If you plan to work in fields like finance or data security, a credit check could be a routine part of the job application process.

Usually, that involves taking a look at your credit report, not necessarily your score, but remember –it's all related.

Credit card companies will limit your options.

Beyond simply getting approved for plastic, with an excellent credit score you'll have access to the lowest available interest rates, your credit limits will keep increasing, and you may also qualify for elite rewards programs.

Such perks (like personalized concierge service and luxury gifts) are reserved for only the top tier of borrowers from credit card issuers.

Future romantic partners might give you the cold shoulder.

More and more experts, like Erin Lowry, are recommending that couples have a credit score conversation before tying the knot.

In fact, a Bankrate survey found that nearly 4 in 10 adults say knowing someone's credit score would affect their willingness to even date that person.

Graduate to a rewards credit card and cash in.

This is the big one.

While off the bat you likely won't be approved for a killer rewards card, after a year or more of responsible credit behavior, you should be able to apply for one of these rewards cards.

Accumulate miles and points, cash in at the grocery store, on your next flight, or on dinner or drinks with friends.

3. How To Correct Your Credit Score

If you haven't checked your credit score in the past four months, this is the most important step you can take before applying for a credit card.

Even if you have, though, it's a good idea to make sure you read your report accurately and write the most persuasive dispute letter possible.

Follow these three steps and you should be on your way to a clean, accurate, and perhaps higher score!

How To Check Your Score

Before you start building or rebuilding your credit, it's a good idea to check your credit to see where you stand and make sure everything is accurate, as consumer expert and national radio host Clark Howard says.

"The credit bureaus very often make errors, so you want to make sure they have everything right. Checking your credit reports is also the best way to check for any unauthorized activity."

The good news is that you can check your credit report three times a year for free — once with each of the three major credit bureaus.

Check out our really easy free credit check tool to find out where you stand in just a few minutes.

Uncover Your Mistakes

With your report in hand, it's time to take out the magnifying glass.

There are a number of common inaccuracies to look for, according to Kristin Wong of clearpoint.org:

Accounts that don't belong to you.

This is a big red flag.

It might just be a mistake or could mean someone has stolen your identity!

Negative items that have expired but haven't yet dropped off the report.

Different types of delinquencies stay on your credit report for different amounts of time. For instance, late payments stay for seven years, while a bankruptcy will stay for ten years.

Personal bankruptcy rate

Personal information errors.

This could simply be an input error, either on your end or the bureaus, but might lead to complications when lenders pull your report and the info doesn't line up.

A paid off account that's still listed as unpaid.

Perhaps the bill got lost en-route or got lost in the stack.

It could take up to 45 days to see the account status updated, but after that, it's a good idea to give the bureau a call.

Fix Your Score

If you find a mistake on your report, the last step is writing a sharp dispute letter.

Because the bureaus receive thousands of these, it's important you stick to a clear script.

Use this FTC sample letter as a template and then post it by certified mail with a return receipt requested, according to Meredith Simonds, writing for the Student Loan Hero.

The credit bureau has 30 days to respond by law.

If you don't hear back, send a follow-up letter referencing the first late.

And if you still don't hear back after that, submit a direct complaint with the Consumer Financial Protection Bureau (CFPB).

4. Improve and Maintain

It might sound counterintuitive, but building your credit does not start with a credit card.

There's a healthy amount of foundational work that needs to be done before you apply for a card.

That way, when you do, you'll be right and ready to take on any speed bump that might show up down the road.

With your credit report in hand, here are another five ways to set yourself up for credit success:

Pay off debt.

Overwhelmed with too much debt?

You're not alone.

According to the U.S. Census, in 2015 the average American had $15,355 in credit card debt.

Remember that your debt accounts for 30% of your credit score.

That means building as aggressive a payment plan as you can is the surest way to rebuilding your credit.

A great method to tackle debt is the snowball method, which suggests you focus on paying off one source of debt at a time, either the one with the smallest balance or highest interest rate.

Create a budget. If you're like most Americans, you likely have a general sense of how much you can spend but never bothered to build out a concrete expense and revenue report. The good news is that it's easier than ever today.

Consider the 50/30/20 rule, the envelope method, or an app like Mint to help you get a grasp of how exactly the money is flowing.

Without a budget, any new credit card, no matter how awesome, could end up hurting your score rather than helping it.

Make saving a priority. Did your credit score get burned because a family emergency forced you to max out a card or two?

Growing an emergency fund is possible despite how tight you might feel your pockets are.

You should have at least $1,000 in a savings account, according to Paul Ritz of National Debt Relief.

"But don't stop there. Ideally, you would have at least six months of your living expenses in savings. If that doesn't seem realistic, try for at least three months' worth."

In today's digital world, there are tons of apps out there to help you build the habit.

Set up automatic bill pay. This one's great for anyone who has trouble remembering due dates.

Was it that water bill you accidentally missed while cruising off the coast that dinged your credit?

Why we pay bills with our smartphones

Or a final cell phone bill you overlooked after switching to a different carrier?

Next time you receive a bill in the mail, call that company's customer service and/or go online to set it up.

Just think — no more late payments!

Take out a secured loan. Have little to no credit history?

This one is for you.

Save $1,000 and get a loan for $500.

Then use the loan or secured card as if it were cash.

Pay back the loan with automatic payments using the other $500.

Yes, you'll pay some interest, but when you have next to nothing on a credit report, this can be an investment in your future.

Also, a debit card is a potential alternative to a secured loan to keep you honest and spending within your means.

5. Top Cards For Poor Credit

There are tons and tons of credit cards out there — each with its own benefits and downsides.

One great way to narrow down the search is focusing on the cards catered to your credit range.

After all, you don't want to pick a card you're overqualified for or one you wouldn't get approved for.

The right card, if used correctly, will help you improve your credit score and save you dollars in the long run.

These next three chapters offer a deep dive into the top two cards for good, average, and poor credit.

Of the many cards considered, the cards chosen are from a variety of different banks to help you get a broad sense of what's available from different credit card issuers.

The two cards directly below are for catered to people with poor credit. Poor credit means a FICO score of 550-649 (or lower).

Open Sky Visa Secured card

With one of the lowest 'low credit' APRs out there, the Open Sky Visa is great if you anticipate keeping a balance on your card.

That being said, 18.39% is not that low and will add up to a hefty amount over time.

Notable fine print

Annual fee. $35 — higher end of the range

Deposit range (min-max). $200-3,000 — higher end of the range

APR. 18.39% (variable) — lower end of the range

Perks

  • Build credit fast with monthly reporting to all three major bureaus
  • Apply to increase your credit line up to $5,000

Drawbacks

  • Pay a max late fee of $27
  • Pay an annual fee, despite it being small

What experts say

Matthew Frankel at The Motley Fool says that if you're thinking about eventually applying for an unsecured card, the Open Sky Visa's issuing bank, Capital One, currently doesn't offer one.

That means you would have to either stick with the secured card or change banks down the road.

"If you have a secured card from one of the larger banks mentioned above, it may be possible to eventually move to an unsecured card without having to reapply at another institution."

Top 10 largest US banks

What consumers say

Consumer reviews were a mixed bag.

Susan K. over at sitejabber.com offered an ode to how the card gave her a financial future.

"I can't believe all the negative reviews so i had to jump on and put my piece in as someone who has only benefited from getting this card.

This card is not meant for big spending, a ton of usage, partial payments bla bla bla this is meant for ppl who are trying to build or rebuild a credit history and /or repair past mistakes."

How to apply

Head over to the Capital Bank website to learn more and apply.

Citi Secured Mastercard

This is a middle-of-the-pack card with a decent annual fee, decent APR, and potentially big credit limit.

If you're a big spender, this card could help you keep up with your finances.

Just watch out for the APR kick if you only pay the minimum balance.

Notable fine print

Annual fee. $25 — lower end of the range

Deposit range (min-max). $200-5,000 — higher end of the range

APR. 21.99% (v) — average

Perks

  • Enjoy complimentary insurance on car rentals charged to your card
  • Benefit from zero-liability fraud protection

Drawbacks

  • Pay a max late fee of $35
  • If you've had a recorded bankruptcy in the past two years you'll automatically be denied

What experts say

Beverly Herzog, writing for her personal financial blog, dotes on the card and points out that most users can graduate to a Citi unsecured card in 12-18 months.

"The Citi Secured MasterCard is a top-tier card on my list of the Best (and Worst) Secured Credit Cards. I'm even moving it up a couple of notches since there's no longer an annual fee."

What consumers say

Courtney G., commenting under the review by Herzog, relates how good behavior kept getting her card improvements over the months.

"I received this secured card in March of 2016. Around January 2017 the annual fee was waived. And just recently I got a letter that said in Aug 2017 I will be moved to a secured Diamond preferred card. And my deposit of $200 will be returned to me. So I have enjoyed this card."

How to apply

Head over to the Citi website to learn more and apply.

6. Credit Cards for Average Credit

Average credit means a FICO score of 650-699.

These cards are also potentially good options if you have no credit, though make sure you check with the card company before you apply to see if you're likely to be approved.

Capital One QuicksilverOne Cash Rewards card

This middle-of-the-pack card offered by Capital One Bank offers a decent rewards program, especially if you're a music lover and Spotify user.

Still, there's a mandatory annual fee and high APR.

As long as you don't keep a balance on the card, it's definitely worth considering.

Notable fine print

Annual fee. $39 — toward the higher end of the annual fee range you'll likely qualify for

APR. 24.99% — toward the higher end of the APR range you'll likely qualify for

Perks

  • Earn unlimited 1.5% cash back on every purchase, every day
  • Get 50% back as a statement credit on your monthly Spotify Premium subscription, now through April 2018
  • Boost your credit line after making your first five monthly payments on time

Drawbacks

  • Pay a max late fee of $35

What experts say

Christine Layton, writing for Credit Shout, considers the card's perks competitive to cards catered to people with excellent credit.

"If you have less than perfect credit, the Capital One QuickSilverOne MasterCard allows you to take advantage of the same perks, benefits, and purchasing power granted to those with an excellent perfect credit history.

"If you are building or rebuilding your credit profile, we think you should consider the QuickSilverOne cash back rewards card for your wallet."

What consumers say

Carissa O., writing on Influenster, gave the card five stars for helping her build credit from ground zero.

"I started with a basic capital one credit card from a mail offer when I was 18. Was able to build my credit and now I have the Quicksilver card. I absolutely love cashback rewards cards. It comes in handy.

"Their customer service has always been super amazing and helpful whenever I have needed them. I love that I get text alerts of all activity and anything suspicious they let me know and ask if it was me right away.

Where do smartphone users activate push alerts

"Their app is really easy to use and keeps me up to date and has so many great features."

How to apply

Head over to the Capital One website to learn more and apply.

Discover it Secured card

If you can afford the deposit required without wiping out your emergency savings, this card competes, if not trumps the Capital One Quicksilver Cash Rewards card above.

There's no annual fee, the APR is slightly lower, and you earn slightly higher rewards on fall around.

Notable fine print

Annual fee. $0 — lowest end of the range

Deposit range (min-max). $200-500 — average range

APR. 23.99% (variable) — toward the higher end of the range

Perks

  • Earn 2% cash back on food and gas up to $1,000 in combined purchases each quarter
  • Earn 1% cash back on all your other purchases
  • Earn $1 cash back for every dollar you spend in your first year, automatically

Drawbacks

  • Pay a max late fee of $37
  • The credit range is potentially limited if you're making more money than your credit lets on

What experts say

Most syndicated review sites highly recommend the Discover it secured card.

J.R. Duren writing for highya.com says there are few if any cards as good for people with bad credit.

"First, Discover's cash rewards and first-year matching can help you earn anywhere from $80 to $160 in your first year. Second, the card's absence of an annual fee is an anomaly in the world of secured credit cards."

What consumers say

Annaaa, writing on creditkarma.com, outlined how she used the Discover it card to help rebuild her credit.

"I applied for a $200 limit and was approved within 3 days and received the card in the mail within 7. When I first applied my credit score was at 513 and it is now at 721 within one month!

"I plan to keep it that way by only utilizing 30% or less and paying it off each month. Once i have the card a little longer I will be back to update my review by for now I give it 5 stars!"

How to apply

Head over to the Discover it website to apply and learn more.

7. The top two credit cards for good credit

Good credit means a FICO score of 700-750.

These are often great second cards once you've already established a year or more of solid credit history.

What determines your fico score

Amex EveryDay Credit Card from American Express

If your credit is competitive, this card has a multi-level rewards program that if used correctly, can create a chain reaction of savings.

Otherwise, the $0 annual fee and 0% introductory APR offer make this a great hybrid card for the domestic spender.

Notable fine print

Annual fee. $0

APR. 0% (12-month introductory offer; then 13.99-23.99% (v)

Perks

  • Earn 10,000 Membership Rewards points when you make $1,000 in purchases in the first three months
  • 2x points at supermarkets on up to $6,000 per year in purchases (then 1x); 1x points on other purchases
  • Use your card 20+ times on purchases in a billing period and earn 20% more points on those purchases (fewer returns and credits)
  • %0 introductory APR for the first 12 months

Drawbacks

  • Pay a 2.7% foreign transaction fee
  • Pay a max late fee of $38

What experts say

Brian Martucci, writing for Money Crashers, says the card's rewards program competes with Chase's Ultimate Rewards program, offered with a number of great cards.

"When you step back and look at its structure, the points-based Membership Rewards system on The Amex EveryDay Credit Card from American Express isn't that different from Chase's Ultimate Rewards scheme, which underpins cash back cards such as Chase Freedom and travel rewards cards such as Chase Sapphire Preferred. Like Ultimate Rewards, Membership Rewards lets you redeem your accumulated points for a wide range of merchandise, travel, and cash equivalents, including gift cards and statement credits."

What consumers say

Over at Wallethub, the card received mixed reviews.

Edd4 left one star and complained about fine print that messed up his mile redemption plans.

"Tried to redeem miles for airline travel I already purchased. Seems there is some fine print that if you don't book through them, You will only receive 1 dollar for every "167" points earned. I specifically asked about this before I signed up and was told its 1 for 1.Now on redeem day they pull this crap."

On the other side, iangoodwin88 gave the card four stars for its reliability.

"This card has been one of the most reliable and consistent cards that I have ever owned. I am excellent at paying my bills on time, but the safety net of having a low APR is really nice in case something comes up. The rewards program is great too.

"It's simple; points = products. If you are attracted to low-interest rates (especially during an introductory period) and do not mind sacrificing some rewards perks than this is the card for you!"

How to apply

Head over to the American Express website to learn more and apply.

Chase Freedom Unlimited Card

Similar to the Amex Everyday card, the Chase Freedom Unlimited offers a slightly better introductory APR offer and cash-back sign-up bonus rather than just points.

Notable fine print

Annual fee. $0

APR. 0% (15-month introductory offer); after 15.99-24.74% (v)

Perks

  • Unlimited and automatic 1.5% cash back on every purchase
  • Earn $150 after you spend $500 on purchases in your first three months
  • 15 month long 0% intro APR offer

Drawbacks

  • Pay a 3% foreign transaction fee
  • Pay 5% or $5 (whichever is greater) on balance transfers, which isn't competitive if a transfer is a priority

What experts say

Brian Graham, writing for Upgraded Points, offers some great tips on how to take full advantage of the Chase Ultimate Rewards program.

"All your cash-back is deposited onto your card account, and it can be used for statement credit or with other partners from Chase Ultimate Rewards. While your cash-back will be worth $0.01 per reward point, you can improve that rate if you also have the Chase Sapphire Preferred Card or the Chase Ink Business Preferred Credit Card credit cards."

What consumers say

As is typical of reviews on Consumer Affairs, people are not too satisfied with Chase's customer service.

Bank statements - electronic or paper

People have complained of repeat statements which prompted them to pay more than once for the same charges. To avoid this, be sure to review each statement thoroughly.

How to apply

Head over to Chase's website to learn more and apply.

Your credit score is the difference between more rewards and higher fees

Hopefully, it's clear by now why your credit score is a number to not just pay attention to, but work to improve constantly.

If not, here's a quick cheat sheet with the biggest takeaways from the article.

Understand and check your credit score often. Whether you like it or not, your credit score will determine many of the lifestyle choices you make — from you next house to the vacation this Christmas.

So, check your score for free every four months.

Correct mistakes on your report and improve your score. A surprisingly large number of Americans live with mistakes on their credit report they will never be aware of.

Don't be one of them and look over your report with a magnifying glass.

Make a budget and save aggressively. Not knowing where your money is going or whether there's enough for the next swipe is a level of anxiety no one wants.

Use proven digital tools to budget your expenses and savings strategies to plan for emergencies.

Though not reviewed above, check out the BankAmericard credit card. We ran out of space, but the BankAmericard is a great alternative option to consider.

Though the BankAmericard doesn't offer rewards, if you're planning a big purchase soon, it's 15-month 0% introductory APR could really come in handy.

Check it out here:

At the end of the day, a top-line credit card could bring in hundreds, even thousands of dollars of rewards — and even pay for your next vacation.

On the other hand, a low score could cost you thousands of dollars in high fees and interest rates, as well as prevent you from scoring that perfect car to get you to your new job or stunning home to accommodate your growing family.

Now that you know the basics about your credit score and have gotten a taste of a few different cards, it's time to learn how to compare different kinds of cards and learn how to prevent common mistakes people make with their finances and credit cards.

Did your parents or best friend ever teach you something valuable about your credit score that you think could help fellow consumers?

Any credit story — nightmare or daydream — you want to share?

Leave a comment below!


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