How FICO Scores Impact Approval Decisions for Credit Cards
Banks and credit card companies decide whether or not to approve applications for credit based on a variety of factors, including: (1) how long you’ve been employed, (2) your family income level, and (3) your credit history, as reflected by your FICO Score.
What is FICO anyway?
FICO stands for Fair Isaac & Co., which is the name of the accounting company that pioneered credit scoring in the late 1950s. The FICO score utilizes mathematical models to determine a single, numerical value that represents your credit history.
How do credit card companies use my FICO score?
The answer to that question depends on the specific credit card you are applying for. Different cards require different FICO scores for approval. These requirements can generally be divided into three categories: Any, Good and Excellent FICO scores.
What does Any mean?
Any means that almost anyone – regardless of their FICO score – can get approved for this type of credit card. However, keep in mind that a low FICO score indicates a higher degree of risk to the creditor – i.e. you are less likely to be able to pay back the card balance. In such a case, the bank or credit agency will cover its risk by adjusting the terms of the offer to their favor. Even with a card that accepts any FICO score, expect an inverse relationship between your score and the card’s interest rate and late fees. Applications for business credit cards will also have FICO score requirements.
Bottom line: The lower your FICO score, the higher the fees and interest.
What does Good mean?
A good FICO score is a minimum of 675. To have a good score, you must have verifiable and steady employment, a respectable annual income, no more than one late payment and a fairly low ratio of utilized credit to available credit. If your FICO score falls below 675 but you not have incurred any late payments in the last year and your total debt burden is small, you may still be eligible for approval of a card with a good FICO score requirement.
Bottom line: Most credit cards are available to you if you maintain a responsible approach to managing your credit.
What does Excellent mean?
An excellent FICO score is 720 or higher. Excellent scorers have low debt utilization, a fairly high annual income and no late payments within their credit history. Creditors will often woo those with excellent credit scores by offering them low annual interest and cash-back rewards.
Bottom line: Perfect credit will earn you access to the most exclusive credit cards.
Whatever your FICO credit score is, keep in mind that the decision to approve or deny a credit card application is not a purely objective one. Even those with an unblemished credit history may be denied a credit card if they already have a high debt load. If you have been denied credit, request a free copy of your credit report to make sure there are no mistakes on it.
