How to Apply for a Credit Card - The 7 Steps to Success

This tutorial explains how to apply for a credit card. There's a lot you need to know before applying for your first card. Fortunately, you can find most of the key points in this one lesson.

Once upon a time, anyone over the age over 18 could get a credit card. That was how it worked during the economic boom years of the late 1990s and early 2000s. But a lot has changed since then. Today, in the wake of an economic recession, the card issuers are actually scrutinizing the applications they receive -- something that was unheard of only a few years ago. Here's how to apply for a credit card in the "new" economy.

Lesson Overview: We will start with the basic steps involved when applying for a credit card. Then we will drill down into the details of each step. We will also define some of the industry lingo you will encounter during the application process.

How to Apply for a Credit Card - The 7 Key Steps

There's a lot more to this process than just signing your name on the bottom line. At least, there should be more to the process. We recommend that you follow the seven steps outlined below when you apply for your first credit card:

  1. Understand how credit cards work.
  2. Check your credit score.
  3. Understand the different types of rates and fees.
  4. Compare the advertised offers of at least three different companies.
  5. Apply for the card.
  6. Review the disclosures you receive after approval.
  7. Use credit responsibly!

If you follow these steps when you apply for a credit card, you'll be more likely to get a fair deal from the creditor. So let's talk about each of these steps in more detail.

1. Understand how credit cards work.

Credit cards allow you to spend money you don't have. Of course, you'll pay for this privilege in the form of interest. The bank will charge you a certain amount of interest for the use of your card. The interest rate is typically expressed as a percentage and labeled with "APR," which stands for annual percentage rate.

The banks make money from this relationship in two ways: (1) by charging interest, and (2) by imposing penalty fees when you violate the terms of the agreement in some way.

Most credit cards are built around the concept of revolving credit. This means you can pay off all or part of your balance each month. As you pay it off, you have more available for future purchases. You do not have a fixed number of payments, as with other loans. Nor do you have to pay off the entire balance each month. You can use your credit and pay it off as often as you like. Of course, whatever you don't pay off will start to accrue interest. This is how the card issuers make money, by adding interest to your unpaid balance.

Let's move on to the next step in the How to Apply for a Credit Card tutorial. Let's talk about your credit score, and how it affects you when you applying for a card.

2. Check your credit score.

This lesson assumes that you can actually qualify for a card. And this is a big assumption, because millions of people are denied credit each year. When you submit your application, the bank will review your FICO score to determine how you have borrowed and repaid money in the past. If you've never borrowed money before, you won't have much information for them to go by. They may require a cosigner in this situation. But if you've taken out a personal loan or anther credit card in the past, you will have a record of payments. This record is used to produce a three-digit credit score, such as the popular FICO score and the lesser-known VantageScore.

According to Tara Burke, spokesperson for Bank of America: "We review each application situation individually, but more or less it's based on stability. Those factors include employment status, ability to pay, willingness to pay and FICO score."

There's another reason to check your score before you apply for a credit card. The interest rate you receive from the bank will be partly based on your score. A higher score can help you secure the best rates available at the time you apply. But you won't know where you stand until you see your scores.

3. Understand the different types of rates and fees associated with credit cards.

When you apply for a credit card, you will see the term "APR" written all over the creditor's website or application form. This stands for annual percentage rate. It is the amount of interest you will pay when using the card.

This is the key to comparing one offer to another. You need to understand what the bank is going to charge you for each transaction. In most cases, they will have a different APR (interest rate plus fees) for different types of transactions. They might have a certain APR for regular purchases, and a higher one for cash advances. They'll probably charge an even higher APR on penalties, like when you miss one of your payments.

For example, here are some advertised APRs found on a credit union website:

  • 9.9% - 17.99% APR for purchases
  • 9.9% - 17.99% APR for balance transfers
  • 12.5% - 22% APR for cash advances
  • 22% - 25% APR for penalties

Right away, you can see that they charge different rates for different types of transactions. There's a broad range presented for the regular purchase APR, because they will charge a different amount of interest for different borrowers (largely based on the person's "creditworthiness," as measured by the credit score).

At the beginning of 2012, the average credit card interest rate for consumers with good credit was around 17%. Consumers with excellent credit scores had an average rate closer to 13%. You can see this reflected above, in the APR range for purchases. But notice how the company was charging a higher rate of 22% for penalties. Common penalties include missing payments and exceeding your credit limit. This is how so many people bury themselves under a mountain of credit card debt without even realizing it. They start racking up extra charges in penalties, and it begins to have a snowball effect.

But we are veering off course here. This is a lesson on how to apply for a credit card, not a lesson on responsible usage (that comes later). Here's what you need to know about the different types of APRs:

  • You can get a lower interest rate / APR by having good credit.
  • The lowest APR will be assigned to purchases.
  • You will probably pay a higher rate for balance transfers and cash advances.
  • You might pay a much higher rate for penalty scenarios. So avoid them!

Credit cards can either have a fixed or variable interest rate. Between 2008 and 2012, we have seen a shift where many banks are moving toward the variable-rate option.

With a variable-rate credit card, the APR amount fluctuates along with the prime rate. But there are other factors that influence it as well. For instance, many banks use the following formula to determine a customer's APR on one of these cards:

Index + Margin = Variable rate

For the "index," banks typically use the prime rate, the federal funds rate, Treasury bill rates, or the Federal Reserve discount rate. You can find all of these indexes online, and probably in the business section of your local newspaper. The margin is chosen by the credit card issuer, and is typically represented by a certain number of percentage points. The margin in this formula may remain fixed, but the index rate will change with various market conditions. This makes the interest rate on your credit card change as well.

Despite the name, a "fixed" rate card can also experience rate changes over the time. But here, the creditor must tell you about such changes in advance. It can't just happen automatically as in the variable scenario. Before you apply for a credit card, you need to know how it will "behave" over time. All of this will be included in the fine print. Your job, as the applicant and future cardholder, is to actually read the fine print.

4. Compare advertised rates and terms.

At this stage, you should be pretty familiar with the different terminology surrounding credit cards. You should also understand how the APR works in different scenarios. Now you are ready to shop around for the best rates and terms. You can do this in a couple of ways.

  • You can visit the websites of some of the major card issuers individually, and jot down their current offers.
  • You can use a website that shows offers from many different banks all at once. These are called network and/or "aggregator" websites. is one example.
  • We also feature credit card offers right here on our website, pulled from the network. See the sidebar area above for details.

Regardless of how you conduct your research, just remember this key concept: You won't know the actual APRs the bank is giving you until after you apply for the card. And that brings us to the next step in the application process.

5. Apply for the credit card.

The application form itself is fairly straightforward. Most credit card applications will ask for the following information:

  • Name and address -- This is self-explanatory.
  • Financial information -- This might include your current housing expenses (rent or mortgage payment), types of bank accounts you currently have open, your annual income, and your current employer. They card issuer uses this information to make sure you have a way to repay your debts. They also want to make sure you're not up to your eyeballs in debt already.
  • Contact information -- Most card issuers will ask for a primary and secondary phone number, as well as an email address.
  • Security information -- This might include your SSN, your mother's maiden name, and possibly some other type of security question.

From an application standpoint, these are the minimum items required to get a credit card. You can provide this information in one of two ways. You can mail it in, or you can complete it online through the card issuer's website.

You can get a credit card by applying online, through the creditor's website. This is true for almost every major card company. Obviously, the online approach is faster than the mail-in application forms. If you complete the application online, make sure you are on a secure web page before providing any sensitive information. You should also download and save a copy of your agreement. Better yet, print it out and read through it carefully. Use a highlighter. Highlight the parts that explain the different APR / interest rates on the card, and the penalty fees that can be imposed in certain cases. You need to understand these items before you apply for a card, regardless of which bank or credit union you are using.

Don't let the perks "dazzle" you into applying for an overpriced card. A bank might be willing to waive their balance-transfer fees, or offer you reward points, in order to get your business. And these things can be appealing. But it doesn't necessarily mean they're offering you the best deal. Another creditor might be willing to offer you a lower interest rate.

Read the fine print of the entire offer before you complete and sign it. Remember, it's a legal contract you are signing. This is true for online applications as well. You are contractually obligated to pay back what you owe, including interest and fees. If you do not make your payments for some reason, the company can turn your account over to a debt-collection agency. They can even sue you in court and garnish your wages. So make sure you know how your card works, and how much it will cost you, before you sign on the dotted line.

6. Review the disclosures after approval. 

You will get certain disclosures from the creditor, once you've been approved for the card. This will include the actual APRs that will be assigned to your account. Keep in mind you are not obligated to anything at this point. You haven't used the card yet. So if you feel the bank has "gouged" you with an unusually high interest rate, in light of your credit score and creditworthiness, you can cancel the account right then and there.

7. Use your new credit card responsibly.

Up to this point, we've talked about how to apply for a credit card. But this lesson would be seriously lacking if we didn't discuss the topic of responsible usage. So here it goes.

How you use your card can affect you for years to come. Your usage will determine whether you end up with a good credit score months from now, or a low score. This might not be important to you right now. But at some point, you may want to take out a mortgage loan to buy a house. Believe it or not, the way you use your credit card today can affect your chances of getting a mortgage loan years from now. How is this possible? Here's an illustration that shows how your financial activity is used to create a credit score.

The Credit Reporting Process

So, when you apply for a credit card, you are also building a credit history for yourself. As you use your card, certain data gets reported to the three reporting bureaus (TransUnion, Experian and Equifax). This data is used to generate a three-digit credit score. Lenders use this score to determine how risky you are as a borrower. If you always pay your bills on time, including your credit card payments, you will end up with a good / high score. If you have a habit of missing payments, you'll end up with a lower score. A low score is a red flag for lenders. It suggests a higher level of risk for them. That's why some borrowers get turned down for car loans and mortgages based on their credit scores alone.

You might not be thinking about these things at this point. After all, you just wanted to know how to apply for a credit card. Why am I telling you all of this stuff about mortgage loans? The reason is simple. You need to think long term when using your card. Consider the following: A single missed payment can stay on your credit report (and suppress your score) for up to seven years.

Disclaimer: This tutorial explains how to apply for a credit card. Despite its length, this lesson does not cover every aspect of the application process. We strongly encourage you to conduct additional research before applying for a card. The Federal Reserve has some good information on its website (, as does the Consumer Financial Protection Bureau ( You can also post your credit-related questions onto our discussion forum at