How Applying for Credit Works

Your first credit card application can be intimidating. Every credit application asks for so much information! Lenders need lots of your data to match you to the correct credit file. They will also decide whether you are risky or not. Even more, the government requires certain information for compliance purposes. With this in mind, we will cover the application process, the credit decision, and the new credit account in detail. By the end of this article, your comfort level of applying for credit should be higher than before.

First Credit Card Application Process

From a customer perspective, you submit information and hope the lender approves your account. On the other hand, from a business perspective, much more is involved. Lenders have entire risk departments that aim to determine what kind of person does and does not qualify. Usually, a person’s FICO credit score is part of the process. For example, a credit score of 600 would be required to open a credit card with a particular lender. The score necessary changes based on the credit product. Moreover, the lower someone’s credit score, the higher the interest rates offered. That happens because people with lower credit scores are riskier and more likely not to repay the loan or credit card.

After submitting your first credit card application, several things happen. First, the lender verifies your basic information against address history services and employment history companies, like theworknumber. Second, the lender uses your social security number (SSN) to pull your credit report(s) from one or more of the big three credit bureaus. Requesting the credit report costs the requesting business a few dollars. For a credit card account, the lender may only retrieve your report from one bureau. Lenders usually retrieve your report from all three bureaus for a more significant loan account like a mortgage. Lastly, the lender uses fraud and card gamification security checks. For example, Chase will deny your application if you opened five or more credit cards from any lender in the last 24 months.

Applying for Your First Credit Card: The Credit Decision

There are three possible credit decisions: approval, denial, and an ‘on hold’ or pending status. Approval is the best-case scenario. The other two can sometimes be fixed by speaking directly with the lender.

Application Approval

Approval is the best outcome. After approval, you will receive account welcome information by mail and email. The lender will also describe additional account terms, interest rates, and other information. Be sure to opt out of optional marketing and sharing if you would like to avoid those. By law, the lender has to provide the option.

Application Denial

Denial is not uncommon and shouldn’t be taken as “bad” in all cases. By law, the lender must provide an “adverse action letter” to describe why they denied your application. Usually, after 7-10 business days, the letter will arrive via regular mail. Read it closely, as there may be an easy reason to correct the denial issue and re-apply.

Application On Hold/Pending

An on-hold application commonly occurs when required information is missing. For example, few major lenders will approve new credit card accounts without checking your latest credit report. It is possible to freeze and unfreeze your credit at the three major US credit bureaus. When your credit is frozen, the lender cannot access your credit file and may place your application on hold.

Your New Credit Card Account

If you applied and the lender approved your account digitally, you will immediately have access to your account online. You can log in and see various information about your new credit account, like the credit line the lender approved you to use. Some lenders like American Express have a feature that provides all your credit card information for immediate use after approval. This eliminates the need to wait several business days for the card to arrive in the mail. However, most lenders do not have this feature. Instead, most lenders will congratulate you on your approval and mail you a physical card in 7-10 business days. You will not be able to use your card until you receive the card in the mail. After receiving the card, you will need to activate the card to use it. This is a simple process that only takes five minutes. Call the number on the back of the card, follow the prompts, and you’re good to go! You can also activate your new card online in many cases. Now it’s time to start earning rewards.