Understanding Credit Cards: How to Qualify for Credit Cards

by Amy Lillard

Credit and credit cards are an integral part of our economic system today. But there is a lot of misinformation and misunderstandings about credit. In this continuing series, we examine key concepts, tips and best practices when it comes to credit cards.

(10/29/2012) Credit cards are useful tools that, when utilized properly, can extend your buying power AND your credit. So how do you get one?

Talk to anyone who receives multiple credit card offers in the mail, and you wouldn't think it's difficult to qualify for a card. But credit card companies do have criteria they consider before issuing a credit account:

• Age. Legally, people qualify for credit cards only after age 18. Usually, to obtain a card without outside help, the cutoff age is older, and must be combined with a steady source of income. Otherwise, cards may be issued for younger applicants if they obtain a co-signer to shoulder the responsibility, like a parent or guardian.

• Income. Applicants must have income of their own. Until last year, credit card companies could issue credit cards based on household income, meaning applicants could qualify using their spouse or parent's income. Income is a critical qualification for cards as it indicates your ability to make regular and timely payments. Additionally, income must be an appropriate level for the requested credit limit, as determined by credit card companies.

• Positive history. A pattern of good credit, combined with a good credit score , will increase the likelihood of being approved for credit cards. Each credit card company may require different levels of good credit, ranging from spotless to good within the past few years.

• Low debt. Credit card companies will check and consider the amount of debt you carry on other credit cards and loans before approving your application. Each company will have different standards here, but most will look for you to have debt below 25 percent of your credit limit (otherwise known as utilization). In addition, companies may look at your debt to income ratio — high debt may be a strike against an application as companies will worry about your ability to pay regularly.

• Limit cards. Each card increases your debt. And if you're applying for multiple cards at once, each credit inquiry counts as a negative factor in your credit history and score. You may be doing yourself more harm than good.

Overall, the best way to qualify for a credit card is education. Know your credit score and what it means, check your scores and reports regularly, and understand the types of credit available to you.