What Information is Required in a Charge Card Application?

A charge card application is actually a loan application. Many people fail to think of charge cards as loans, but the charge card company is actually extending credit on each purchase you make. As such, you will be required to prove you are creditworthy through the application process. Creditworthiness is a measure of how much you can afford to pay, how you have handled past debt and how much other debt you currently have. This information is reported through your application and your credit report.

Income and Ability to Pay

The first thing a lender will asses is whether your income is high enough to manage the required payments on a charge card. Even low income individuals should be able to manage charge card debt. If your income is low, however, the charge card company may only extend you a low limit card. This prevents you from overspending, which saves the lender from losing too much if you fail to repay the debts. You will typically have to provide proof of income. This can be done by reporting an average checking account balance, showing a paycheck or turning in a tax schedule.

Debt Ratios

How much debt you currently hold will also be considered. If you are in debt to a number of different lenders, like student loan lenders or car loan lenders, then you will not be as likely to receive a high limit credit card. Basically, the debts you owe each month are subtracted from your monthly income to determine your actual spendable income. This means even high income borrowers could have too low an ability to pay. 

Credit History

Your credit history is summed up on your credit report. The lender will view your report from one of or all three bureaus, Experian, Equifax and TransUnion. Your report will show the debts you have taken in the past and how well you managed those debts. Any late payments are a sign if irresponsible management. The lender will also be looking to see if you have enough of a credit history, meaning a report that is long enough and expansive enough, to give them a good feel for your overall performance. Borrowers who have never taken a loan before will have to settle for low limits and less favorable terms.

Charge Card Offer

Based on all of these factors, the lender will extend you an offer for a charge card. The two major areas to be aware of are limits and rates. Your limits rely nearly entirely on your income and debt ratio. If you have a high ability to pay, you may get high limits despite having poor credit. Your interest rates, however, will rely nearly entirely on how well you have managed debt in the past. It is therefore possible to be punished on one end and rewarded on the other with a low interest, low limit card or a high interest, high limit card. Once you receive your offer, you can negotiate with the lender to find a balance that works for you.


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