While the idiom “cast your net wide” may prove a wise strategy in some situations, it’s not the case when it comes to applying for credit cards. If you submit a lot of applications in a short amount of time, it can actually have a detrimental effect on your credit report. In turn, this could hurt your chances of a successful application.
This guide explains the relationship between credit card applications and your credit report, teaches you how to navigate the credit card application process, and offers other tips for optimising your credit score to increase your chances of approval.
Credit card applications and your credit report
Each time you submit a credit card application, the credit card provider assesses your application by requesting a copy of your credit report. This is called a “hard credit inquiry” and is recorded on your report for up to two years, regardless of the outcome (which is not recorded). Hard inquiries aren’t limited to credit card applications; you get one every time you apply for any kind of loan, mortgage or utility credit. Each hard inquiry can take a few points off your credit score.
While occasional hard enquiries are unlikely to hurt your credit score, imagine having a bunch of them together on your report within a short period of time. To a lender, it could look as if you’re desperate for credit, and definitely raises a red flag when they are assessing your application.
That said, credit providers consider a lot more factors than merely the hard inquiries on your credit file. They also look at any other black marks such as late payments, payment defaults, court writs or bankruptcies. Plus, if you have any positive payment history on your file (such as details of a credit account you always pay on time), this could work in your favour.
What constitutes too many credit card applications?
There is no definitive answer to this question, because it depends on a number of factors. For example, if your credit history is stellar, you can probably afford to have a few more hard inquiries on your file than someone whose credit history is already shaky and riddled with black marks.
Other factors lenders consider when you apply for a card. These include:
Your income. A high and stable income results in a lower risk for lenders. It also means you have a greater potential ability to make repayments on one or more credit accounts.
Your existing credit accounts. Depending on your income, if you already have a few credit accounts and a moderate income, you may not qualify for any more credit.
Your existing debts. If you are already steeped in debt, no creditor would consider you a safe borrower.
Potential future debt. Having a number of new credit card applications could lead to greater potential liabilities or debts. Lenders could weigh this factor against your income and other current financial details. If this is the case, you are less likely to be approved if you’ve applied for multiple cards in a short amount of time.
Different circumstances, different application outcomes
Antonio and Sebastian both work as sales reps and both earn $60,000 p.a. They both apply for the same credit card, but only Antonio is approved. Why? Sebastian had applied for three credit cards a week earlier. He also had two existing cards with combined credit limits of $40,000. Based on this information, the lender determined that he would not be able to service all the new cards if they were approved.
Antonio, on the other hand, had one existing card with a credit limit of $5,000. He didn’t apply for any other cards, so the lender determined that he would have sufficient income to manage both new cards.
How to ensure you get approved and avoid over-applying
Here are some steps you can take to avoid over-applying:
Compare credit cards. It is critical to research what cards are on offer, and to compare your options before settling on the credit card that most closely suits your needs. You should also check the eligibility requirements for each card that you compare, to make sure you find the card that is most compatible with your financial situation. See our Credit Card Guide for help.
Apply for just one card. Based on your careful study and comparison, pick the card that best suits your financial circumstances and needs, and only apply for that one card. You should provide as much detail as possible in your application because this will improve your chances of success. See our Credit Card Applications Tips to help you get an approval.
Wait for an outcome. These days most providers offer an outcome in minutes when you apply online. For other applications (i.e. written or over the phone), it may take a few business days. No matter how long the wait, it is important to hold off applying for other products until you have an outcome.
- If you are approved at this stage, you shouldn’t need to apply for another card. If your application is not approved, follow these additional steps:
Contact the provider. Some providers may be more than happy to explain why your application was declined. Others may refuse, but it’s worth asking to see if you can find out why. This will be helpful for subsequent applications.
Check your credit history. You are entitled to one free credit report a year, which you should regularly request, because mistakes are sometimes made on credit reports. When you receive it, read it through carefully, looking out for errors that may need fixing. Credit agencies will investigate the matter for you if you report a mistake. Even if there are no mistakes in your report and those black marks are meant to be there, actually viewing your credit report can motivate you to work on improving it for the future.
4 tips to improve your credit score
Practice these tips to protect your credit history and increase your credit score:
Make payments on time. Since March 2014, credit reports include repayment history such as payment due dates, whether you made or missed those payments, as well as when you made the missed payments. This means paying your bills on time can work in your favour, while missing them works against you.
Pay down existing debt. Nip debt in the bud before it rears its ugly head in your credit report. Pay off your credit card debt using our 10 quick tips.
Close credit accounts you don’t use. Having dormant accounts not only lowers your chances of getting a new account that you really need, it may also be costing you administrative fees. There’s no time like the present to close them. Note this also includes any joint accounts you no longer use that are still active (i.e. share-house utility accounts).
Don't apply too often. Remember that any and all of your applications for credit are recorded on your credit file as hard inquiries, including all types of loans. If you’ve already conservatively applied for two or three credit cards in succession and been rejected for them all, take a break from applying to give your credit report some space. Also take the time to figure out why you’re getting rejected in the first place. Get hold of your credit report and analyse it, then improve it with the tips we’ve provided.
Before applying, always make sure you’ve carefully compared cards on the market and chosen the most suitable one for your needs and spending habits. Make only one application at a time to improve your chances of approval and to protect your credit score.
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