The credit card application process explained

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If you aren't a credit card aficionado, you may be a little foggy as to how the credit card application process works. The process is necessary to getting any credit card - you are never guaranteed a card, no matter how good your credit is.

Here's how the process works and some factors that can affect your approval.

Applying for a credit card should be simple - no longer do you need to apply in-person at the bank. Most lenders have "apply" buttons on their websites so you can complete the application from your desktop, laptop, tablet or even smartphone. In less than 10 minutes, you can apply and find out whether you've been approved or denied.

Of course, you still can apply for a card in-person at a bank, or even at credit card kiosks at supermarkets and the mall. You can also apply over the phone.

"Credit card applicants have more ways than ever before to apply for credit cards," David Blumberg, public relations director at TransUnion, said in an emailed response to questions.

But what goes into the approval process? The answer varies depending on which lender you use.

Different lenders have different processes
Increasingly, there is less human involvement and more computer involvement in determining card approvals.

This is leading to faster application approval times, allowing for those "instant approvals" that many lenders tout.

However, that doesn't mean there are no "real people" looking at your application at all. Often, a computer algorithm does the first review, then a human gives the final sign-off.

For example, when you sign up for the Tangerine Money-Back Credit Card through Tangerine's website, your application may be automatically approved by a bot, depending on your client history. However, a Tangerine client services representative says most applications are reviewed by a real person. If there are any questions regarding the application, the representative will contact you.

This is slightly different from PC Financial's process. According to a PC Financial client services representative, when you apply for a PC Financial credit card online, it's reviewed by a real person. Some follow-up may be required by the bank's credit team if any information submitted on your credit application doesn't match your credit report.

Each bank has different criteria and different processes when approving new card applications. However, there are still some general rules you can follow to nudge the scales in your favour - and some things that make you more likely to be denied.

Common reasons for application denial
Before lenders will approve your credit card application, they want to ensure you're likely to use it responsibly and pay your bills on time. There are a few ways for them to determine this.

Your credit score is composed of several factors: your repayment history, your credit utilization ratio (how much credit you have compared to how much you use), your credit mix, the length of your credit history and the number of recent credit inquiries.

Your repayment history and utilization ratio are the two biggest factors. If you have a history of timely payments and don't use too much of your available credit (many experts recommend using no more than about 30 to 35 per cent), your score should be in good shape.

Your recent inquiries are also telling - lenders do not want to see too many recent inquiries, regardless of whether they were approved or denied. Too many approvals mean you have much more credit than you need, and too many denials suggest you're desperate to borrow and may not be in a good position to repay what you charge.

"If you've recently applied for and been denied for a credit card or your credit utilization is over 35 percent, it can hurt your chances of being approved for a credit card," said Blumberg.

However, even if your application is denied, don't give up. There are options.

"If your application is turned down for a standard credit card, you may consider applying for a secured credit card," Judith Cane, money coach, said in an emailed response to questions. "With a secured credit card, you're required to make a deposit. This is a great way to use your credit card responsibly and build your credit history."

You can also try asking for a credit limit increase.

"If you need more credit, rather than apply for a second credit card, your best bet is to apply for a credit limit increase," said Cane.

Just remember the golden rule: Before applying for a new card or accepting a credit limit increase, make sure you're using your existing credit responsibly, Cane says. The last thing you want to do is use additional credit to get further into debt.

See related: 5 surprising ways you can sink your credit score, Application denied: 6 reasons for credit rejection, Watch out for these 7 mistakes when applying for a credit card

Published June 14, 2017

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