How credit card applications work

How credit cards work once you own them is well-documented and there are plenty of guides to this.

However, how the applications for the things work - in other words, how you get hold of one in the first place - is less written about.

This is completely understandable but it's an imbalance that this article hopes to put right at least a little bit with the explanation of some terms that are commonly encountered when making a credit card application and, perhaps equally important, what the applicant can expect.

To start, as with musicals, at the very beginning, let's take a look at some of the terms encountered during a credit card comparison.

One of the most important of these is the interest rate. The headline rate will be written down as a variable APR.

APR stands for annual percentage rate and doesn't reflect the interest that'll be charged every month. That monthly rate is much lower and can be found though in the card's terms and conditions. It should be noted that on a debt which is outstanding for a year, it comes to the same thing.

A variable rate means that the advertised rate is just a guideline.

In theory for this rate to be advertised it should be offered to at least two-thirds of applicants but, because the standard of applicants cannot always be anticipated, some studies have shown that less people than this generally actually achieve this headline rate.

If you only just meet the application criteria for a card, then, expect the interest rate that you're offered to be higher than the one you see advertised. For this reason, it may be worth you while applying for a card when you are over-qualified.

Note that the APR should be noted even when looking at getting cards for their introductory rates - 0% balance transfer credit cards, for example - since this will be the rate charged on the balance if, for any reason, you're unable to pay off the balance in full.

This is equally true of rewards and 0% purchase cards such as the Tesco clubcard credit card.

Another term that it's worth knowing is annual fee. This is a flat, yearly fee which generally indicates a card with added extras such as insurance. If these options are unlikely to be used the annual fee should be avoided as much as possible.

From that point credit card applications can be made online or with a paper form but the card company will need to know details of income, address and other financial commitments.

Most applications will then require the applicant to sign to confirm the contract and then resend the information in return for the card.

How credit card applications work

By: Julia Cook

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