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Credit card approval - the role of your credit score
Whether you are applying for a new credit card or requesting an increase on an existing one, your credit score is a significant factor in the card issuer's acceptance. Credit ratings are generally based on the standard set by Fair Isaac and Co (FICO), whereby several factors from your financial history are compared against millions of other consumers to predict how high risk you should be considered as a borrower. But what exactly influences your credit score?
Your payment history is the first and most important influence in your credit score, accounting for approximately a third of the final score. If you have missed payments they will check how recently these late payments were, whether it is a recurring problem and how quickly you rectified the situation. If you have had previous accounts referred to a collections agency, have had a county court judgement brought against you or have ever filed for bankruptcy, this is going to work heavily against you. Your credit rating may be lowered to such an extent that your credit card application may be rejected by more reputable issuers, and an increase on your credit limit will most certainly be denied.
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Of almost equal importance in determining your credit score is the amount of debt you have already accumulated and on what type of account. The outstanding balance on each account in comparison to how much you originally borrowed will be taken into consideration. If you have accumulated a large amount of debt already but have paid off only a small percentage of this, it will negatively affect your score and act as a red flag to the card issuer.
The length of your credit history is also taken into account, and determines about 15% of your credit score. Unfortunately this means that if your credit history is very short a card issuer can be reluctant to approve your application, or will only be willing to offer you a card at a high APR, as they have no standard to judge how reliable you may be at repaying your debt.
The credit agency will also establish how your existing debts are distributed, for instance store cards, mortgage loans, credit card, etc. If there is a varied mix this will work in your favour. If you have several existing credit cards, or too many general loans this can be detrimental to your credit rating, depending on the other factors involved in calculating the score.
The final factor in calculating your credit score is calculated on the number of new accounts you have applied for. This factor looks at how long each account has been established, whether you have made applications to other financial institutions recently and how long it's been since any other companies have run a credit check on you.
If you are concerned that your credit score is low and will affect your ability to apply for new credit cards or increase your credit limit, it may be prudent to look into measures to help raise your rating. For instance, taking precautions to make sure all payments are made on time and try and pay off existing debts before applying for new credit. It will be worth it if you wish to apply for a card with a reputable issuer.
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