What To Consider Before You Apply For A Credit Card

Gregory J. Cook, EA, CPA+
Accredited Tax Advisor
Past President Alabama Society of Enrolled Agents
Past President Alabama Association of Accountants

What To Consider Before You Apply For A Credit Card

Before you make the decision to apply for a credit card, you will want to make sure that you are choosing the card that is best for you. There are hundreds of options to choose from, and almost all of them are quite different. Consider the following before submitting your application.

Those with bad credit should not waste their time applying for a credit card that is reserved for those with a high credit score. That does not mean that you cannot have a credit card if you have bad credit, just that you will need to choose a company that specializes in high risk lending. You will be able to tell the difference, as high risk credit cards are advertised as being for those with credit issues.

Those that have a good credit score will have plenty of choices. The better your score, the lower the interest rate should be. If you have a good credit score, make the most of it by carefully comparing your options. It may be that you can receive an extremely low APR. Obviously, this is highly desirable. You may also qualify for a zero interest balance transfer. This is a great way to pay off an existing balance quickly.

You may want to check your credit before applying for a credit card. Knowing your numbers may help you make the decision of which card to choose. It is acceptable to contact a credit card company in advance of applying and asking them what the credit score range for approval is. Though some companies will encourage you to apply no matter what, others will gladly give you this information.

The process of filling out a credit card application has never been easier, and can be done online. Online security is always an issue, and you should see what security measures are being taken should you decide to apply online. Much money, time, and effort is put into online security, and there is no reason to avoid the online application process unless you spot some serious red flags. Most websites have a section that will tell you what security measures are in place.

Those that have never filled out an application before should be prepared to provide basic information about yourself, your income, and where you work. You will also be asked for your social security number. This number will be used to verify your identity, as well as to check your credit score. In some cases, online applications will provide you with an approval or decline immediately. Typically though, this will take a few days.

When you apply for a credit card, an inquiry will be placed on your credit report. This is nothing bad, just a note that someone has considered you for a new credit account. This is standard practice, and nothing to fear. However, do keep in mind that too many inquiries may drop your credit score slightly. For this reason, only apply for credit cards that you are seriously interested in.

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The Recovery Act was passed by Congress and signed into law by President Obama on February 17, 2009. The purpose of the $787 billion Recovery package is to jump-start the economy to create and save jobs. The Act specifies appropriations for a wide range of federal programs, and increases or extends certain benefits under Medicaid, unemployment compensation, and nutrition assistance programs. The legislation also reduces individual and corporate income tax collections (to an extent), and makes a variety of other changes to tax laws.

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Have You Refinanced Your Home?
If you are one of thousands who locked into a lower home mortgage interest rate, then you've hit the savings jackpot! Besides getting one of the lowest rates in decades, you may be able to deduct some of the refinancing costs when you file your tax return. The “points” paid to get a home mortgage may be deductible as mortgage interest when you itemize on Form 1040's Schedule A. Points paid to get an original home mortgage may be fully deductible in the year paid. However, points paid solely to refinance a home mortgage usually must be deducted over the life of the loan.

For a refinanced mortgage, you figure the interest deduction by dividing the points paid by the number of payments you will make over the life of the loan. You may deduct points only for those payments made in the tax year. Say you paid $2,000 in points and you will make 360 payments on a 30-year mortgage. You could deduct $5.56 per monthly payment, or a total of $66.72 if you made 12 payments in one year. If you used part of the refinanced mortgage money to finance improvements to your home and if you meet certain other requirements, the points associated with the home improvements may be fully deductible in the year the points were paid.

Also, if you are refinancing a mortgage for a second time, the balance of points paid for the first refinanced mortgage may be fully deductible at pay off. Other closing costs – such as appraisal fees and other non-interest fees – generally are not deductible. And the amount of your adjusted gross income could affect the amount of deductions you can take. Any way you look at it, between the lower interest rates and the tax savings, that's money you can take to the bank. For more information on deductions related to refinancing, contact your Cook and Co. Advisor.