Purpose

• Credit cards are essentially unsecured loans --- meaning a company lends you a certain amount of money without certainty as to whether you will pay it back. It's for this reason that credit card companies make judgments of approval or denial based on your credit information. If you have a history of bad credit or bankruptcy, they'll see you as a high risk; but if you have a history of timely payments and responsibility, they're more likely to loan you money.
  
  

Qualifications

• At the bare minimum, you'll need to be 18 to apply for a credit card -- although the Federal Reserve now requires applicants under 21 to demonstrate that they will be able to make payments or else they will need a cosigner to apply for a card. In addition to meeting the age requirement, you'll need your Social Security number, address and phone number, income information, bank information and either a good credit record or a cosigner who has a good credit record. If you have bad credit, no one to cosign for you, or you're under 21, you may want to try a prepaid credit card, a store charge card, or a secured credit card (one that requires you to put down a deposit before borrowing) to build your credit.
  
  

Methods

• When a credit card company checks your creditworthiness, it accesses your credit file. These companies use the same three credit reporting companies that you can use to see your report. Most credit card companies will also verify your income to see if you make enough to pay off a credit card regularly. This is usually done electronically, which is how you can be approved in seconds when you apply for a card online or in a store.
  
  

Scoring Models

• Most credit card companies use a type of "scoring model" when determining your creditworthiness. Typically, consumers have less chance of being approved if they haven't paid bills on time, have a maxed-out credit card, don't have a long banking/credit history, have applied for multiple credit cards in a short time, or have too many credit accounts. If you need to improve your score, focus on paying down your high interest cards first and never missing a payment.
  
  

Expert Insight

• The FTC states that consumers have a legal right to understand specifically why they aren't approved for a credit card. The FTC says "this information is free if you ask for it within 60 days of being turned down for credit or insurance," so if you're unsure why you were rejected, use this law to your advantage. Consumers also might not realize that they are allowed to dispute the terms of the card. For example, if you were approved but assigned a high interest rate due to an inaccuracy on your credit report, you can dispute your credit report error to have it removed. The FTC recommends keeping an eye on your credit report for this reason --- you can avoid confusion and rejections if you know what credit card companies see when they look at your report.