Can your credit score impact how and when you're approved for a credit card?

Whether you’re an avid points chaser or just looking for something for emergencies, taking out a credit card is a significant financial commitment. One of the most influential factors in determining your approval is your credit history and credit score.

Your credit score can significantly impact how and when you are approved for a credit card. So, if you’ve not investigated your credit score or ever requested a copy of your credit history you may be applying in the dark and risking rejection.

Why does a credit score impact credit card approval?

Your credit score is an indication of your financial reputation and showcases to credit card issuers how reliable you are with your finances and how risky you could be as a customer. As a credit card can be misused to accrue debt, card issuers want to ensure they’re not putting at-risk customers in bad financial positions.

So, to determine your eligibility as a customer and your level of risk around accruing debt, credit card issuers will perform a hard credit check on you when you apply. This is a standard process for credit card issuers in Australia and part of every provider’s eligibility criteria.

A credit reporting bureau (usually Experian or Equifax in Australia) will then advise the card issuer of your current credit score. This information will then be used by the issuer, along with the rest of your application information including your income and expenses, to determine if you are eligible for a credit card.

Credit check steps involved in applying for a credit card

1. You apply for the credit card.
2. The issuer performs a hard credit check on you.
3. A credit reporting bureau will advise the issuer of your current credit score.
4. The issuer will assess your score as part of your overall application to determine your eligibility.
5. You find out if you are approved or rejected.

Positive behaviours like repaying your bills on time or paying off a car loan, as well as adverse events like late payments or defaults on loans, are reflected in your credit history. Your credit history is used by credit reporting bureaus to indicate your credit score.

What you need to know about your credit score

It’s worth noting that your credit score with one credit reporting bureau will likely differ from another’s. This is because credit reporting bureaus will review your financial data at different time frames, and they use individual methodology to calculate your credit score.

The two main credit reporting bureaus in Australia also have different scales for how they may grade your score. While all credit scores sit in the categories of below average, average, good, very good or excellent, the actual number score will likely differ between bureaus.

Source: Equifax.com.au, Experian.com.au.

When you apply for a credit card, the issuer will look at the score band you sit in as well as the number. But it’s worth reviewing your credit score before you apply as you may fit into, say, the ‘Very Good’ category with one bureau and the ‘Excellent’ category with another due to the reasons listed above.

How to boost your chances for approval for a credit card

Now you understand the significance of your credit score in your credit card application, it may be worth reviewing ways you can potentially boost your chances of approval when you apply.

• Avoid multiple applications

Don’t get confused into thinking applying for multiple credit cards could ‘hedge your bets’ and improve your chances of approval. Every time you apply for a credit card this will show up on your credit history.

Credit reporting bureaus and credit card providers will typically see multiple applications in one time frame as ‘credit hungry’ and showcasing a higher level of risk you could default. Multiple applications at once are actually more likely to lower your credit score as opposed to helping you get approved for a credit product.

• Review your credit score

Before you apply for any financial products, it’s worth grabbing a copy of your credit history and going through it with a fine-tooth comb. It’s not unheard of for errors to occur, like a family member’s financial behaviour to be accidentally added to your file. Credit reporting bureaus offer Australians one free copy of their history each year.

You can also discover your credit scores with Equifax and Experian for free through RateCity’s Credit Score Hub. This process involves a ‘soft’ credit inquiry which will not hurt your credit score or be reflected on your history. If your credit score is sitting lower than expected, it may be worth boosting your credit score before you apply for any credit card.

• Avoid job-hopping

It’s not just your credit score that card issuers will look at when you apply. They’ll also assess your income to ensure you can afford the credit card limit, and the stability of your income as well.

If you have recently moved roles and are still in a probation period, it may be worth considering holding off on applying for a credit card until this is over. Being employed in one role for at least 3-6 months may look more favourable for your application, with a 12-month+ employment period considered ideal.