Why It May Be Harder to Get a Credit Card in 2021

Credit card issuers, like all of us, are adapting to pandemic life.

Credit card issuers, like all of us, are adapting to pandemic life.

Risk: It's the basis of every decision-making process. Do I want to risk an unsatisfactory meal, or go with a known favorite? Do I lend my sister that sweater -- or will I never see it again?

If you've recently been burned (figuratively or literally) by a bad meal, you're probably going to stick with what you know for a while. And by the third lost top, you're not very likely to hand over any more favorite clothes.

When staring down an economic downturn during a global pandemic, banks are probably going to tighten their purse strings. Even with a potential end to the pandemic in sight, the economy is going to take a long time to bounce back. In the meantime, credit card issuers are going to play a long game of Minimize the Risk.

Better scores and larger incomes

One of the first things credit card issuers do when faced with increased risk is cut back on how much money they hand out. In particular, they tend to tighten their approval requirements. This often translates to fewer approvals for subprime credit consumers (those with low credit scores), as well as higher credit score qualifications overall.

But issuers never stop with just your credit score -- and that's likely to be twice as true in high-risk environments. Your entire credit profile will be under scrutiny. Your payment history and current credit utilization, already important, may take on extra weight with risk-averse creditors.

Even if you have a good score, high unemployment rates can mean issuers take a harder look at income levels as well. An annual income that may have qualified you without much fuss before could now seem like too high a risk to an issuer looking at layoffs left and right. At the very least, an uncertain job market could mean you'll need to show proof of your steady income before you can get your hands on a new card.

More than any other category, expect to see requirements get tighter on balance transfer credit cards as consumers move debt around. Applicants with borderline credit scores and high debt levels may find it challenging to get approved for those juicy 0% intro APR balance transfer offers from major issuers. (Credit unions may still have easier approvals, but even they are likely to be tightening their belts.)

Lower credit limits and higher interest rates

Issuers' efforts to minimize their risk during the pandemic won't be limited to harder approvals. As we already saw in 2020, issuers are reconsidering the amount of money they're willing to put out there -- and the result is lower credit limits. Both existing cardholders and new applicants can expect to wield less spending power with their credit cards in 2021.

Along with offering lower credit limits, issuers tend to react to higher risk with higher interest rates. Even though federal interest rate increases aren't super likely, card companies may hike their rates. If nothing else, new cards will probably have standard interest rates at the upper ends of their ranges for all but the best credit scores.

Keep low balances and open new accounts sparingly

If you have plans to apply for any new credit cards in 2021 -- or loans or any kind -- make sure your credit profile is in tip-top shape. There are five factors that go into your FICO credit score:

1. Payment history: Pay your debts on time every month to build a positive payment history.
2. Amounts owed: Keep your credit card balances low (ideally, pay them off every month).
3. Credit history length: Establish credit early and maintain your accounts in good standing.
4. Credit mix: A healthy variety of credit products, like credit cards and loans, shows you can handle multiple credit types.
5. New accounts: Don't open too many new accounts in a short period of time, as this can be a warning sign to creditors.

It will likely be harder to get new credit in 2021 than it was in 2019 or early 2020 -- but a lot of things will be harder than they were before the pandemic. Just think of it this way: You survived 2020. You can handle anything 2021 has to offer.