What is the minimum credit score for credit card approval?

A credit score holds a lot of power in the financial world. Whether you're looking to spend money or build credit with a credit card, or any credit account, a credit check is usually the first step.

Most lenders and creditors have a minimum credit score requirement between you and your future credit card. A credit score determines your creditworthiness and credit risk as a borrower. Besides your eligibility, credit scores have a lot of influence on the terms and conditions of your credit card and whether you can maximize the card's features to your benefit.

In this comprehensive guide on minimum credit score requirements for credit card approval, we dive into what credit scores are, minimum credit score requirements for a credit card, how credit scores influence your credit card perks, and how you can increase your approval chances.

Understanding credit scores

Your credit score is a numerical representation of your creditworthiness. The three-digit number given by credit bureaus based on your credit report indicates how likely you are to repay borrowed money. Credit bureaus calculate your credit score based on several factors and give you a score ranging from 300 to 850.

Here's a breakdown of how your credit score is calculated.

Payment history

Payment history makes up 35% of your credit score. It records your debt payments, like credit card statements, mortgages, and personal loans. Timely payments are the cornerstone of a good credit score. Credit card companies want to see a consistent record of on-time payments to prove your creditworthiness.

Credit utilization ratio

Credit utilization is 30% of your credit score and considers the debt you owe relative to your credit limits. For example, if your credit limit is $10,000, and you used $3,000, that's 30% credit utilization. Keeping your ratio around 30% can positively impact your credit score. It signals responsible credit management.

Length of credit history

The longer your credit history, the better. Credit history measures the length of time you've had credit accounts. The credit card issuer likes to see a track record of responsible credit use over time as it shows financial health and sound credit management skills. Your credit history makes up 15% of your credit score.

Types of credit used

Your credit mix contributes to 10% of your credit score. A healthy credit mix is a combination of instalment loans, like mortgages and car loans, and revolving credit, like credit card debt. It demonstrates the ability to manage different types of credit responsibly.

New credit

New credit also makes up 10% of your credit score. Opening multiple credit cards affects your credit score, especially if done within a short period, as it could indicate financial strain or risk-taking behaviour. Each new credit account also results in a credit check, and hard credit inquiries can harm your score as well.

What is a good credit score in Canada?

The average credit score in Canada is 680, which is a good credit score according to the credit scoring model. A good credit score typically falls in the 670 to 739 range, but scoring models vary for each credit bureau. This range indicates to lenders that an individual is financially responsible and has a relatively low risk of defaulting on credit obligations. A very good score ranges from 740 to 799, and an excellent credit score falls between 800 and 850.

A higher credit rating increases your chances of getting approved for a credit card. A credit score in the good to excellent range demonstrates you have a history of making payments on time, managing credit responsibly, and maintaining a healthy credit utilization ratio. With a good credit score, you're more likely to get higher credit limits, credit cards with better rewards programs, and lower interest rates.

In addition to a good credit score, lenders may have additional criteria for assessing creditworthiness, like income. Monitoring your credit report regularly and taking steps to improve. Your credit score can help you achieve your financial goals and access better credit opportunities in Canada.

How your credit score affects your ability to get a credit card

Your credit score plays a pivotal role in determining your ability to get approved for a credit card. Lenders use your credit score as a primary factor to assess your creditworthiness and credit risk of lending money to you. Here's how your credit score impacts your ability to get a credit card.

Approval odds

A higher credit score increases your chances of getting approved for a credit card. Lenders typically view individuals with high credit scores as safer borrowers with responsible financial behaviour, less likely to default on debt. A lower credit score can hinder someone's approval odds, as lenders perceive these individuals as higher-risk borrowers.

Interest rates

Applicants with a good to excellent credit score often qualify for credit cards with lower interest rates. Lenders view these individuals as less likely to default on their debt, so they offer more competitive terms to attract their business. If you have a lower credit score, you may still get a credit card, but are more likely to get a higher interest rate. Credit card companies offset the perceived risk of lending to these individuals by charging a higher interest rate.

Credit limits

A higher credit score typically results in a higher credit limit. Credit card issuers have more confidence in managing credit responsibly and may extend larger credit limits accordingly. Whether you're applying for a new credit card or a credit limit increase, the issuer is more likely to give you a bigger limit.

Rewards and benefits

Credit cards with more lucrative rewards and benefits often require higher credit scores, like very good or excellent ratings. With a higher score, you can access better cash back, travel rewards, and premium perks like lounge access and travel insurance. Basic credit cards can still offer rewards, but may have lower earning potential and fewer perks.

Approval conditions

Some lenders offer secured credit cards to individuals with a lower credit score. A secured credit card requires a cash deposit to secure the money borrowed. If you want an unsecured credit card, you may need to find a co-signer with a good credit score.

Minimum credit score required for credit card approval

There's no specific answer, as every lender can have different standards and criteria based on the card you're applying for. Higher-end rewards cards or cards with more benefits may require a higher credit score, typically above 700. However, some credit card companies specialize in providing guaranteed approval credit cards for bad credit individuals.

It's important to understand that credit score is one factor credit card issuers consider when evaluating an application. The credit card issuer also looks at income, employment status, and existing debt to assess your approval chance. You can compare different credit cards to get a full understanding of the eligibility criteria for the ones you're interested in and ensure you fit the requirements before applying.

What can I do if I don't meet the minimum credit score for credit card approval in Canada?

There are a few options to boost your score if you don't meet the minimum credit score for credit card approval. A higher credit score proves your creditworthiness and increases your chances of approval.

Check your credit report

Get a copy of your credit bureau from one of the major credit bureaus, a credit reporting agency, or your credit card issuer. Review any potential errors or inaccuracies to ensure your information is up-to-date. Disputing discrepancies immediately reduces the potential harm to your credit score and protects you from identity fraud. You can get a limited number of free credit score reports or pay for a comprehensive report.

Build your credit history

Credit history is a record of your borrowing and repayment activities, including financial transactions and behaviours. If you have limited or no credit history, consider getting a secured credit card. Secured credit cards require a security deposit as collateral for the credit limit. By using a secured credit card responsibly and making on-time payments, you can establish or rebuild your credit history over time.

Reduce your debt

High levels of debt can harm your credit score. Focus on paying down existing debts, particularly high-interest credit card balances, to improve your credit utilization ratio and demonstrate responsible financial behaviour.

Make on-time payments

Payment history is one of the most significant factors influencing your credit score. Ensure you pay all your bills on time, including credit cards, loans, and utility bills, to avoid late payments and negative marks on your credit report.

Consider a co-signer or authorized user

If you're unable to qualify for a credit card on your own, consider applying with a co-signer with a better credit score. You can also become an authorized user of someone's credit card account and use their card to help you build credit. Both parties' credit histories will be impacted by the credit card activities.

Can you get a credit card with limited or no credit history?

Poor credit or no credit history shouldn't stop you from applying for a credit card, and there are ways to get approved. Although it can be more challenging to get a credit card and require additional steps or considerations, here are some options to consider.

Secured credit cards

Secured credit cards are designed for individuals with poor credit or limited credit history. You provide a security deposit typically equal to the credit limit and can borrow money up to the limit. Many banks and credit card issuers offer secured credit cards.

Prepaid credit cards

A prepaid credit card allows you to load funds in advance and use it for purchases or withdraw money. Your card isn't linked to a line of credit or a bank account. The amount you load becomes your spending limit, and you can reload once you run out. Prepaid cards are typically accepted anywhere a major credit card network is accepted.

Starter or student credit cards

Some credit card issuers offer starter or student credit cards designed for students or people with no credit history. These cards may have lower credit limits and fewer rewards or benefits compared to many others. However, they are a good starting point for individuals looking to start their credit-building journey.

Credit builder loans

These are loans designed to help individuals establish or improve their credit history. You borrow a small amount of money, typically held in a savings account or certificate of deposit. As you make payments on the loan, the lender reports your activity to the credit bureaus, helping you build your credit history.

Store and affiliated credit cards

Store and affiliated credit cards are issued by specific retailers or organizations, often in partnership with a financial institution. These cards typically offer branded rewards, special financing offers, store discounts and perks, customized offers, credit-building opportunities, and loyalty programs. It's essential to weigh the pros and cons of a store or affiliated credit card to determine if the rewards and features align with your spending habits.

Credit unions

Some credit unions offer credit cards tailored to individuals with limited or low credit scores. They may be more lax and willing to work with you to approve a credit card based on other factors, such as income and banking history.

How to improve your credit score

Improving your credit score takes time and effort, but it's definitely achievable with consistent, responsible financial habits. Here are some steps you can take.

Review your credit report

You can get a copy of your credit report from a credit bureau or a financial institution. Review your information and financial activity periodically to ensure the information reflected is accurate and complete. Track your credit-building progress and dispute discrepancies immediately to avoid hurting your credit score.

Reduce credit card balances

Insufficient funds may result in your credit card being declined. It also increases your credit utilization and can hurt your credit score. Try paying off credit card balances in full each month and keep the utilization below 30% of your total available limit.

Keep old accounts open

The length of your credit history is an important factor in your credit score. Avoid closing old credit card accounts, even if you're not using them actively. They contribute to your credit length and can show lenders you have a long history of responsible credit management.

Pay your bills on time

Late payments are one of the most significant factors influencing your credit score. It also makes your overall credit card bill more expensive once you start racking up interest charges. Always pay your bills on time and consider setting up automatic payments or reminders to ensure you never forget a statement.

Avoid too many new credit accounts

Opening multiple new credit cards within a short period raises concerns about credit issues. Lenders may be less inclined to offer you a credit card if they see several applications on your report. Each credit application results in a new credit check, and a declined application further harms your score.

Build a diverse credit mix

While a credit card is useful and convenient for making purchases, diversify your credit accounts. A mixture of instalment loans, credit cards, and mortgages can positively impact your credit score. However, it's important to only take on new credit if you can manage it responsibly.

Should you apply for a credit card if you don't meet the minimum credit score?

If you don't meet the minimum credit score requirements for a particular credit card, it's generally not advisable to apply for it. When you apply for a new credit account, the lender or creditor does a hard credit check. A hard credit inquiry pulls information from your credit report to assess creditworthiness to make informed decisions about credit approvals and lower the lender's risk. Getting denied for a credit card approval further lowers your score.

Multiple credit applications within a short period can raise red flags to lenders and may indicate financial instability. It can lower your chances of approval for future credit applications. If you don't meet the minimum requirements, consider our tips for improving your credit score before applying. You can also consider other credit options, like credit builder loans, or go to a lender specializing in credit cards for individuals with poor credit.

What else do credit card companies look for in a credit application?

In addition to your credit score, lenders consider several factors when evaluating your credit card application. These factors help lenders get a more comprehensive assessment of your overall creditworthiness and determine whether to approve your application or what terms to offer. Here are some key factors lenders typically consider:

• income and employment to ensure a steady source of income

• debt-to-income ratio to assess your ability to manage additional debt responsibly

• savings and assets and housing status to determine financial stability

It's essential to consistently practice good financial habits and demonstrate your ability to manage credit responsibly to increase your chances of getting approved for a credit card.

Get approved for a KOHO credit card

To get approved for a KOHO credit card, you'll need to meet certain eligibility criteria and complete the application process. You typically need to be a Canadian resident who is the age of majority with a valid Canadian mailing address. If you're approved, you can get a physical and a virtual credit card to spend on online and physical stores.

The KOHO credit card provides cash back rewards on every dollar spent and has no monthly fees, making it a cost-effective option for managing your finances. Get real-time insights into your spending habits, access budgeting tools to build good money habits, and monitor your financial health with a free credit score report.

If you're concerned about going over your credit limit, you can subscribe to Cover, the overdraft protection coverage giving you up to $250 in zero-interest cash advance. You won't be charged additional fees as long as you pay back the borrowed money.

Ready to build your credit with KOHO and earn interest and rewards that optimize your earnings potential? Learn about the accounts KOHO offers and how you can leverage our help to reach your financial goals faster.