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With the current economic downturn casting wide uncertainty about the future, it's no secret that banks are becoming more strict about who they approve for new credit cards.
If you have recently applied for a credit card, you might have been asked to submit additional employment verification or show more documentation of your income.
"Applying for new credit today is different than it was just a short time ago," says Jim Triggs, president and CEO of nonprofit credit counseling agency Money Management International, Inc (MMI). With lenders scrutinizing potential borrowers more than they did before the pandemic, he suggests being ready.
"Consumers need to be prepared to be declined for new credit if they show any risk at all — like late payments, maxed out credit cards or potentially the fact that one has some new credit inquiries," Triggs says. "This is even if their credit score is perceived to be good or excellent."
If you are planning to apply for a credit card during coronavirus, here are four ways to increase your approval odds, as well as what a credit card issuer may ask for when you apply. While these steps may not guarantee your approval, they will certainly improve your chances.
Your payment history is the most important factor in determining your credit score. A good credit score will increase your odds of being approved for a credit card as lenders like to see that you can manage an additional line of credit and make monthly payments on what you charge.
You should always pay your credit card bills on time each month and try to pay them in full if you can. For those who aren't able to right now, pay at least the minimum so your account stays in good standing.
The same goes for all your other bills as well. Paying your monthly utilities, cell phone, car loan and mortgage or rent payments by their due dates helps keep your credit score in check. Just make sure that these on-time payments are reported to the credit bureaus so that they appear on your credit report (services like Experian Boost and Experian RentBureau can help with this). Some credit card issuers might even consider these payment obligations when you submit an application.
If you already have a high credit score, a missed or late payment could seriously hurt you. FICO data shows that for someone with a credit score of 793, a 90-day missed payment would cause their score to drop by 100 points. Whereas the same 90-day missed payment would cause a credit score of 607 to drop by only 27 to 47 points.
Given the surging unemployment rates, lenders are looking at your income just as much as your credit score to see if you qualify for new credit.
"With over 40 million Americans out of work, creditors are most likely concerned about potential delinquency and the overall ability for consumers who may be struggling to repay the debt that they borrow," Triggs says. "Consumers may have to provide additional information to prove their employment and income than they may have had to provide in the recent past."
While documentation requests aren't standardized from lender to lender, applicants could be asked to send in additional verification to confirm their identity and prove their income, Leslie Tayne, a debt-relief attorney and founder of Tayne Law Group, tells CNBC Select.
"Some lenders are now asking for copies of bills for proof of address and social security cards for identity purposes," Tayne says. "Credit scores and credit reports don't provide creditors with insight regarding an applicant's income, so proof of income may be required to secure the approval of a credit card."
If you've recently lost your job or you are anticipating a layoff, you can still qualify for a credit card but you need to show that you have the ability to make payments. The good news is that you don't have to show high disposable income, just verified income.
"For lenders that are approving new credit, their focus does not appear to be on a consumer having a higher level of income," a spokesperson at credit bureau Equifax tells CNBC Select. "Instead, many lenders are focused on applications with higher credit scores and being able to verify income via The Work Number or established payment habits through bank transaction data." The Work Number is an online database that provides income and employment verification services for both employers and their employees.
With the increased focus on income verification, there are still some alternative income sources that you can list on your credit card application to help qualify, thanks to the CARD Act. They include:
- Unemployment benefits
- Your spouse's income if they still work (or household income)
- Your investment returns
- Rental property income
- Trust fund payouts or inheritances
- Any child support you receive
- Alimony payments you receive
- Social Security payments
- Public assistance
- Retirement distributions
If you don't think your current income is enough to get approved for a credit card right now, you should consider applying for a secured card. These cards are generally easier to qualify for because they have less strict income requirements. With a secured card, you can continue to build your credit score like you would on a normal credit card but you will need to put down a refundable deposit upfront which acts as your credit limit. For this reason, you will usually have a lower credit limit, but it's a good stepping stone to work your way toward qualifying for a credit card.
Some of CNBC Select's top picks for secured credit cards are below.
- Best low deposit: Capital One® Secured
- Best for high credit limit: First Tech® Federal Credit Union Platinum Secured Mastercard®
- Best for low interest from a major bank: Citi® Secured Mastercard®
- Best for low interest from a credit union: DCU Visa® Platinum Secured Credit Card
- Best for traveling abroad: SDFCU Savings Secured Visa Platinum Card
The easiest way to gauge your approval odds for a new credit card is to be informed. Become familiar with your credit report and and monitor your credit score frequently, especially as you implement good money habits to try to improve your score.
From now through April 2021, you can get a free credit report every week from each of the three main credit bureaus (Experian, Equifax and TransUnion) by going to AnnualCreditReport.com. Federal law entitles everyone to one free credit report from each bureau per year, but in wake of the financial hardship from the coronavirus outbreak it has made credit reports more easily accessible.
You can also check your credit score for free by logging into your credit card issuer's site or by using a free credit score service accessible to anyone, such as CreditWise from Capital One, Chase Credit Journey or Discover Credit Scorecard.
Information about the Capital One® Secured, First Tech® Federal Credit Union Platinum Secured Mastercard®, DCU Visa® Platinum Secured Credit Card, and SDFCU Savings Secured Visa Platinum Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.