Favorable Credit Card Terms Hinge on Your Credit Score

There are several things that separate good credit card deals from the bad ones. Interest rate, annual fee, and credit limit are a few of the most important terms and your credit score influences all of them.

Credit Card Approval

Your credit score, and a few other factors like income and age, is used to determine whether you’re approved for a card to begin with. Before you apply for a credit card, it’s a good idea to check the credit criteria for that card. That way, you’re not applying for an offer that’s out of your league. Check your credit score before you apply if you don’t already know where you stand.

If you get denied for a credit card because of your credit rating, you’ll receive a letter in the mail telling you the exact reasons that your application was denied. For example, you may have had too many recent late payments.

Interest Rate

If you know you’re not going to pay your credit card balances in full each month, then interest rate is a very important factor. Your interest rate affects how much you pay each month in finance charges. The higher your interest rate, the higher your finance charges will be. Higher finance charges also make it difficult to pay off your balance since much of your minimum payment will go toward paying the finance charge.

Your credit score affects your interest rate. Credit card applicants with good credit scores are generally given the lowest interest rates. On the other hand, those who have bad credit scores have higher interest rates and face a higher cost for carrying a credit card balance.

Credit Limit

The credit limit on a credit card is the maximum amount you can charge on your credit card. So, if your credit limit is $500, you can only charge $500 worth of products and services on your credit card. Exceeding your credit limit will result in an over-the-limit fee.

Many credit card issuers decide your credit limit based on your credit score. If you have a good credit score, you’ll generally be given a higher credit limit than if you have a lower credit score. The reasoning is that borrowers with poor credit scores may handle a high credit limit irresponsibly.

Annual Fee

Some credit cards, especially those for people with bad credit, come with an annual fee that’s charged every year you have your credit card. At least one credit card issuer – Orchard Bank – bases the annual fee on your credit history. Better credit scores are benefitted with a lower annual fee.

However, annual fees aren’t always based on credit scores. With certain types of credit cards, the annual fee is based on the quality of that card’s benefits. For example, some of the best reward credit cards have the highest annual fees.

In general, you can expect to pay a higher cost for credit cards when you have a bad credit score. While there are some expensive credit cards aimed at people with excellent credit, these borrowers at least have the option to choose a lower-priced credit card. People with bad credit don’t always have that luxury.