If you’ve ever scrolled through the terms and conditions of a credit card you are considering — a good idea, by the way — you may have noticed that most issuers quote a range for your annual percentage rate. And if you have good credit (and are a big finance nerd — or, maybe, more pointedly, a perfectionist like me), you may have wondered why you weren’t given the lowest possible APR alongside your approval.
Stellar credit scores entitle you to the best rates and terms, after all, no? Well, yes, but underwriting is … complicated.
Not the Same Numbers
First and foremost, it’s important to note that the credit score you’re looking at is practically guaranteed to be different than the one your credit card issuer is pulling. There are lots of different credit scores out there — many are tailored to specific loan types; others are even proprietary models commissioned by lenders — and while they’re all generally based on the same building blocks, there could be variances in what constitutes average vs. good vs. excellent credit.
In other words, that 810 score you’re looking at, while super by generic credit score standards, may compute a bit lower when crunched by your lender.
More Than Just Your Score
Beyond that, credit card issuers do consider more than just those three little digits when determining whether they’ll award you an account and, if so, what its terms will be. For instance, most ask for your income, which plays a large role in determining your credit limit.
“Another factor that can affect their decision is what relationship the consumer has with the institution,” Eric Lindeen, vice president of marketing for ID Analytics in San Diego, California, which offers fraud prevention tools and credit risk management scores to issuers, said in an email. “For example, a large savings account decreases risk, while holding multiple cards from the same institution increases risk.”
And those other factors can play a role in determining what terms you’re actually offered, like your card type, grace period, cash advance limit, and/or payment forgiveness windows.
In other words, “credit policy for large credit card issuers is very complex,” Lindeen said. And since regulations now prohibit them from changing many terms on card accounts without six months’ notice, “lenders are more likely to hold back on their best terms until they see how an account performs,” he said. “The safer approach in this environment is to issue good terms and have room to upgrade as the consumer demonstrates positive behaviors.”
Getting the Best Terms
It’s still important to make sure your credit is in tip-top shape before applying for a credit card. While consumer credit scores may vary from one a lender is using, they will give you a general idea of where you stand and what type of offers you might be able to qualify for. (You can view two of your credit scores for free each month on Credit.com.) If your credit is looking a little lackluster, you can raise your score by paying down high credit card balances, disputing errors on your credit report and waiting for negative information to age off or your reports — while making on-time payments, of course.
And, if you’re dissatisfied with the terms and conditions you’re offered, you can always call the issuer directly to see if they’ll reconsider their offer. You can alternately wait, use the card responsibly (i.e. make all your payments on time and keep your balances low, or better yet, nonexistent) and then see if they’ll lower your rate. Just be aware: This may generate a new hard inquiry on your credit report, which can ding your credit score.
Image: Jacob Ammentorp Lund