Which Credit Cards Will You Qualify For? It's All In Your Credit Report and Your Credit Score.

When you apply for credit cards the providers will order your credit report from one or more of the large credit reporting agencies. They will also order a credit score. The providers will use the objective information contained in those two items to evaluate your creditworthiness and will determine the credit cards they will offer you.

Your Credit Report.
Information about you may be in one or more of the three major credit reporting agencies: Equifax, Experian, or Trans Union. Credit card companies, banks, savings and loan companies and other financial institutions regularly report information about you to these agencies. Other businesses only report information when you may be badly overdue on payments, or when you list them on an application for credit elsewhere and they are queried by the credit reporting agency.

Credit reporting agencies also gather public records information like court judgments, tax liens and bankruptcies. But despite all this information about you held by the credit reporting agencies, it's the credit card issuer-- not the reporting agency-- who makes the credit decision on your application.

Your Credit Score.
The credit card provider will also order a credit score through one or more credit reporting agencies. The most common credit score is a "FICO®" score, derived from the Fair, Isaac Company, who originated it. On their Web site Fair, Isaac says, "Your FICO® score is the numeric representation of your financial responsibility, based on your credit history. Based on a scale of 300 -850, there are three FICO® scores - one from each national credit bureau. These three FICO® scores are the measure that most lenders will look at when evaluating your credit or loan applications."

A separate credit score is calculated from the information in each credit reporting agency's report. Fair Isaac runs a statistical analysis on that info and compares it to thousands of similar reports and then computes the FICO score. FICO scores have different names depending upon which agency they are reported from: a Beacon® score (Equifax), an Experian/Fair Isaac Risk Model® (Experian) or an Empirica® score (Trans Union).

Credit card companies usually divide FICO scores into ranges and offer their different types of credit cards according to where an applicant's score falls.

There are other credit scoring methods in addition to the FICO score, and each credit agency may have its own method of calculating a score. The credit card issuer themselves may also have their own credit scoring method.

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Protecting against credit card loss.

Limiting Your Financial Loss In Case of Lost or Stolen Credit Cards.

Report the loss or theft of your credit cards and your ATM or debit cards to the card issuers as quickly as possible. Many companies have toll-free numbers and 24-hour service to deal with such emergencies. It's a good idea to follow up your phone calls with a letter. Include your account number, when you noticed your card was missing, and the date you first reported the loss.

You also may want to check your homeowner's insurance policy to see if it covers your liability for card thefts. If not, some insurance companies will allow you to change your policy to include this protection.

Credit Card Loss or Fraudulent Charges (FCBA). Your maximum liability under federal law for unauthorized use of your credit card is $50. If you report the loss before your credit cards are used, the FCBA says the card issuer cannot hold you responsible for any unauthorized charges. If a thief uses your cards before you report them missing, the most you will owe for unauthorized charges is $50 per card. Also, if the loss involves your credit card number, but not the card itself, you have no liability for unauthorized use.

After the loss, review your billing statements carefully. If they show any unauthorized charges, it's best to send a letter to the card issuer describing each questionable charge. Again, tell the card issuer the date your card was lost or stolen, or when you first noticed unauthorized charges, and when you first reported the problem to them. Be sure to send the letter to the address provided for billing errors. Do not send it with a payment or to the address where you send your payments unless you are directed to do so.

ATM or Debit Card Loss or Fraudulent Transfers (EFTA). Your liability under federal law for unauthorized use of your ATM or debit card depends on how quickly you report the loss. If you report an ATM or debit card missing before it's used without your permission, the EFTA says the card issuer cannot hold you responsible for any unauthorized transfers. If unauthorized use occurs before you report it, your liability under federal law depends on how quickly you report the loss.

For example, if you report the loss within two business days after you realize your card is missing, you will not be responsible for more than $50 for unauthorized use. However, if you don't report the loss within two business days after you discover the loss, you could lose up to $500 because of an unauthorized transfer. You also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you. That means you could lose all the money in your bank account and the unused portion of your line of credit established for overdrafts. However, for unauthorized transfers involving only your debit card number (not the loss of the card), you are liable only for transfers that occur after 60 days following the mailing of your bank statement containing the unauthorized use and before you report the loss.

If unauthorized transfers show up on your bank statement, report them to the card issuer as quickly as possible. Once you've reported the loss of your ATM or debit card, you cannot be held liable for additional unauthorized transfers that occur after that time.

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When you use a credit or charge card to check into a hotel or rent a car, the clerk usually contacts the company that issued your card to give an estimated total. If the transaction is approved, your available credit is reduced by this amount. That's a "block."

Here's how it works: Suppose you use a credit card when you check into a $100-a-night hotel for five nights. At least $500 would be blocked. In addition, hotels and rental car companies sometimes include anticipated charges for "incidentals" like food, beverages, or gasoline. These amounts can vary widely among merchants.

If you pay your bill with the same card you used when you checked in, the final charge probably will replace the block in a day or two. However, if you pay your bill with a different card, or with cash or a check, the company that issued the card you used at check-in might hold the block for up to 15 days after you’ve checked out. That's because they weren't notified of the final charge and didn't know you had paid another way.

Why Blocking Can Be a Problem

Blocking is used to make sure you don't exceed your credit line before checking out of a hotel or returning a rental car, leaving the merchant unpaid.

If you're nowhere near your credit limit, chances are blocking won't be a problem. But if you're reaching the limit, be careful. Not only can it be embarrassing to have your card declined, it also can be inconvenient, especially if you have an emergency purchase and no available credit.

How to Avoid Blocking

To avoid the aggravation that blocking can cause, follow these tips:

Consider paying hotel, motel, or rental car bills with the same credit card you used at the beginning of the transaction.
When you check into a hotel or rent a car, ask clerks how much will be blocked, and how the amount is determined.
If you pay with a different credit card or with cash or a check, ask the clerk to remove the block.
In addition, when you choose a credit card, ask issuers how long they block credit lines for transactions involving hotels, motels, and rental cars. You may want to go with an issuer that uses short blocks.