A few month ago, TechCrunch founder Michael Arrington ranted on TechCrunch about how his applications for an American Express credit card were repeatedly denied, despite his “good/excellent” credit rating of 748.
After the post was published and received hundreds of comments, Tweets, and a healthy helping of buzz, an American Express representative called Arrington and offered him a $15,000 credit limit on a brand new AmEx card. Here’s the full recap.
For the rest of us, no matter how much we rant, rave, and blog, we likely won’t be receiving a personal phone call from an issuer offering a credit card on a silver platter. But, with the right know-how and appropriate steps, you can make your good credit work for you when applying for a credit card.
It’s More Than Just Your Credit Score
Based on the comments in response to Arrington’s post, most TechCrunch readers believe that wealth equals good credit. But there are plenty of case studies that prove this assumption false. There is Mike Tyson, who had multiple homes, cars, and even a few lions, but was also deep debt and probably suffered terrible credit. Warren Buffet, a billionaire, only has a credit score of 718, and Michael Jackson reportedly had an average score of 564. Wealth and income aren’t components in the credit scoring algorithm; these factors have no direct impact on your credit.
For Arrington, despite a credit score in the mid-700s, it was likely a lack of credit history that caused issuers to turn him down. Arrington had only one other credit card with a credit limit of $3,700, which he reports he routinely maxes out. Maybe if Arrington checked his Credit Report Card, he would’ve seen that these credit components indicated that he was a high-risk borrower.
What AmEx did see was an applicant with red flags all over the place: declined twice already, a credit limit reduction from $15,000 to $3,700, and one credit card that is normally maxed out. The AmEx screening application screening process has no idea that Arrington sold TechCrunch for a reported $30 million in September.True, Arrington has a good credit score, but lenders stopped using credit scores as the sole determinant for approval 15 years ago.
With today’s tighter lending standards, lenders consider all the data on your credit report, plus any other financial piece of they can find about you such as income estimates and even utility bills, as a factor in lending decisions. Recently, our own Credit Karma CEO was declined by a lender just because he had an adjustable rate mortgage, despite a 780 credit score with 6 active cards in good standing.
3 Steps to Make Your Credit More Attractive to Lenders
It’s a new generation of credit scores out there, adjusting to our economy’s changing credit landscape. You need to adjust to fit lender’s standards too. Here’s what you should do to fortify your creditworthiness in the eyes of lenders:
- Have more than one credit card. U.S consumers have an average of four or five credit cards. Your ability to juggle multiple credit cards and keep them in good standing speaks volumes about your creditworthiness.
- Don’t max out the credit cards. Watch your credit card utilization and stay under 30% of your credit limits at all times. Using too much credit too often, and piling up debt, will appear credit-desperate to lenders.
- Always pay on time. Arrington did a good job of that, which is why he has a 748 and not a 550. On-time payment is a crucial factor to lenders, who want to ensure that extending credit to you won’t result in a loss.
Believe it or not, the credit system works and credit scores can be indicative of your creditworthiness. One in three people will default if they have a credit score of 500. Only one in 333 will default if their credit score is 800. Consumers just need to be as sophisticated as the system. Start with these three steps over a long period of time, and credit approval will be in your reach too.
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- A Credit Card For People With Bad Credit – $10,000 Guaranteed Starting Credit Line
- What’s a Good Credit Score – Analysing What’s a Good Credit Score
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