If you are churning credit cards, it's important to remember that the number of cards you can apply for will vary depending on your financial circumstances.
Read on for a closer look at what banks consider when assessing applications and some red flags that could result in a decline.
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Key takeaways
- The number of credit cards you can apply for depends on your financial circumstances.
- Factors banks consider include your income, debts, assets, liabilities, credit limits, spending history, and employment.
- Don't apply for a card if you don't meet the minimum spending criteria.
- Monitor how your credit score responds.
What banks look at
When assessing your application for a credit card, banks will consider several factors.
- Income and source of income. When assessing your application, banks will consider your individual and household income. They will also want to know where the income comes from, evidenced by payslips or financial reports if self-employed. A steady source of income implies you are likely to continue to have the means to repay the credit card balance. The higher your income, the more likely it is to be approved for a credit card.
- Debts and ability to pay them. Banks will also examine your current debts and your ability to repay them. This is because they want to see that you are not overextending yourself with too much debt. If you have a high debt-to-income ratio, getting approved for a credit card may be more difficult.
- Assets and liabilities. Banks will also consider your assets (e.g. property) and liabilities (e.g. outstanding loans) when assessing your application. This is because they want to see that you have a good financial standing and are not overextended financially.
- Total available credit. Banks will also look at the total credit limits of all your credit cards. This is because they want to see that you are not overextending yourself with too much credit. If you have a high credit utilisation ratio, getting approved for a new credit card may be more difficult.
- Past spending and repayment history in your credit report. This includes how much you have spent on your credit cards in the past and how well you have paid off those balances. A history of late or missed payments can be a red flag for banks and may make it more challenging to get approved for a new credit card.
Red flags for banks
Address any of these red flags before applying for a new credit card to increase your chances of approval.
- High debt-to-income ratio. Banks consider a high debt-to-income ratio as a signal of difficulty repaying the debt and, therefore, a higher risk.
- Late or missed payments in your credit report. Banks view these as a sign you may be experiencing difficulty managing your finances and paying back debts.
- Recent bankruptcy. Applying for a basic credit card too soon after coming out of bankruptcy will likely result in a decline, even more so for multiple applications in short succession. You'll need to build your credit history up, which is challenging since it's hard to get.
Things to consider
Before applying for a new credit card, it's important to consider several things.
- Can you hit the spending target and trigger the bonus? This is especially important if you are chasing more than one spending target.
- Can you afford the annual fee? If you don't cancel the card and have to stump up, will you be able to afford it?
- Is the bonus useful to you? This is particularly relevant if you are loyal to a single airline and the bonus is for points you don't regularly chase.
FAQs
How many credit cards should I have?
There is no set answer to this question since the number of credit cards you can have depends on your financial circumstances. It's essential to consider your income, debts, assets, liabilities, credit limits, spending history, and employment situation since things can spiral out of control quickly if your income changes unexpectedly.
Will applying for multiple credit cards hurt my credit score?
Applying for multiple credit cards quickly can lower your credit score, as it can appear to lenders that you are in a difficult financial situation. It's important to leave time between applications and to keep your credit utilisation ratio low.
Can I cancel a credit card before I've activated it?
Yes, cancelling a credit card after you've been approved and before activating it is possible.
