Credit reports and credit scores are tools that credit card issuers use to predict the risk of doing business with an applicant or an existing cardholder. This is standard procedure when you apply for a new account.

As an existing cardholder, your credit card company might also review your credit report and score regularly (usually monthly). This helps them ensure that your risk level hasn’t increased significantly as you continue to borrow from the same account.

Since credit card issuers (and other entities) might use your credit report and score to make business decisions regarding you, it’s important to understand what companies see when they check your credit report.

Your credit report comes from Equifax, TransUnion, and Experian (the three major credit bureaus). You might be surprised to find that the details a credit card issuer sees during a credit check might differ from what you see when you review your own credit report.

Your Personal Information

When you apply for a new credit card, one of the first tasks for the issuer is to verify the legitimacy of your application. To do this and to rule out potential fraud, the issuer will use software to confirm that the details in your application match the personal identifying information (PII) in your credit report.

Your credit report’s PII might include:

• Name
• Address
• Social Security number
• Date of birth
• Employment information

Credit card issuers, lenders, credit bureaus, and other entities use these details to identify you. However, PII does not factor into your FICO® Score or VantageScore credit score calculations.

While PII doesn’t affect your credit score, it’s crucial to ensure that this part of your credit report is accurate. Incorrect names, addresses, and other PII errors could indicate identity theft or other inaccuracies in your credit report.

Your Credit Score

Technically, your credit score is not part of your credit report. It’s a separate product sold alongside your credit report, like a car’s leather interior. But credit card issuers can and do pay extra for one or more scores to help predict your likelihood of timely payments.

If your credit score doesn’t meet the issuer’s minimum requirements, you may not qualify for a new account. Additionally, if you are an existing cardholder and your credit score drops too low, your current issuer might take adverse actions.

In severe cases, your issuer might reduce your credit limit or even close your account if your risk level increases.

Red Flags in Your Credit History

Unsecured credit cards are a high-risk form of lending because there’s nothing to guarantee your spending, like a car or a house. That said, you don’t usually need perfect (or even good) credit to qualify for a new credit card. But you need to avoid red flags that could disqualify you from using the card you want.

When you apply for a new account, issuers might look for these red flags in your credit history. These vary by credit card company and the type of card you’re applying for. For example, subprime credit cards and secured credit cards are often easier to qualify for than premium rewards cards.

Here are some negative credit items that might pose problems for your credit card application:

• Late Payments: Recent late payments, especially on other revolving credit card accounts, might make some credit cards hard to qualify for. Too many delinquencies can also cause trouble for existing credit cards—even if the late payments occurred on unrelated accounts.
• Collection Accounts: Accounts with third-party debt collectors can also be problematic when applying for a new credit card. Issuers willing to approve you might charge a higher interest rate, a practice known as risk-based pricing, to offset the risk of doing business with consumers who have damaged credit.
• Bankruptcy: A bankruptcy on your credit report might disqualify you from getting financing from certain credit card companies, especially if you previously discharged some of your debt with the issuer. Some issuers are willing to work with people who have past bankruptcies, but you shouldn’t expect the best deals when your credit report shows a bankruptcy.

Your Revolving Credit Usage

Another detail that issuers might consider when reviewing your credit report is your revolving utilization rate (also known as your credit card utilization rate). This rate describes the relationship between your credit card limits and balances, expressed as a percentage.

When you use your available credit limit, your balances increase, and so does your utilization rate. An increased utilization rate can lower your credit score. Reducing your revolving utilization rate by paying down credit card debt is one of the few viable methods to quickly improve your credit score, often within weeks.

If your credit report shows high usage on other credit cards, issuers might hesitate to approve your new account application, especially if you’ve maxed out other accounts with the same issuer from whom you’re seeking additional financing.

Recent Hard Credit Inquiries

The number of new credit applications you’ve submitted in the past 12 months is another detail issuers might check. Seeking too much credit in a short period implies higher credit risk.

According to FICO, people with six or more hard inquiries on their credit reports are eight times more likely to declare bankruptcy than those with no inquiries. This correlation is why scoring systems consider inquiries—they correlate with credit risk.

Next Steps

Understanding what issuers look for during credit checks can help you prepare for your next credit application. You can easily and freely access copies of your three credit reports from AnnualCreditReport.com.

After downloading your free annual credit reports, check them for errors and dispute any inaccuracies with the three credit bureaus. From there, focus on positive actions that can help boost your credit, such as paying every bill before the due date and maintaining manageable credit card debt levels.