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Figuring out whether you will get approved for a credit card is seemingly simpler now with credit card approval odds calculators. These tools can offer guidance, highlighting credit cards with high approval odds in your favor. However, they are not always reliable.

It can be helpful to also understand the key factors that can help make you a more desirable borrower for credit card companies, thus increasing your future approval odds.

What Are Credit Card Approval Odds?

Credit card approval odds inform you of the likelihood that you’d get approved for a particular credit card. How these approval odds are determined, including which details are assessed, can vary between services and card issuers.

For example, a credit card approval odds calculator might suggest that, based on your credit score and income, you have an 80% chance of getting approved for a credit card. It might also offer you a few credit cards with high approval odds to explore.

Checking Your Credit Card Approval Odds

Using a credit card approval odds calculator offers a glimpse of your approval chances, but not a promise. That’s because a credit card company or credit card marketplace can’t provide a 100% assurance of your approval without going through a formal underwriting process.

Underwriting is the step where a lender or issuer evaluates your credit portfolio and application details (like existing debt and income) to calculate whether it would be a risk to extend credit to you. Since this process can only happen after an application is submitted, a tool that states you have high approval odds doesn’t mean your eventual approval is guaranteed.

Prequalifying for a Credit Card Approval

There are a couple of ways to obtain a pre-screened credit card to gauge your approval odds: Receiving a prequalification offer or requesting a prequalification from a credit card issuer.

Using a Prescreened Offer

Based on your general information from the credit bureaus, card issuers might send you an unsolicited prescreened offer stating that you might be qualified for its credit card.

At this step in the process, the card company has only looked at limited markers, like whether you’ve met its minimum credit score requirement. It hasn’t performed a hard credit check nor evaluated your existing debt or income to base an approval on. However, if you receive a prequalification offer, this can be a positive sign that your approval odds are better than if you hadn’t received it.

Checking the Card Issuer’s Website

You don’t always have to cross your fingers in hopes that a card issuer will give you a prescreened offer. Some credit card issuers offer a prescreening form that you can fill out to see if you’re prequalified for its card. If your preferred card doesn’t let you request a prequalification, you might find more insight on the issuer’s website about what’s required for approval.

While you’re on the card issuer’s site, it’s helpful to review its response timelines so you can track your pre-qualification or application progress. This includes the timeline for an application decision, as well as how long it takes to get a credit card if you’re approved.

What To Do if You Prequalify

If you prequalify for a credit card, you can choose to submit an application. Doing so will require a hard credit inquiry before a decision is made, which can temporarily have an effect on your credit score.

Additionally, you can continue shopping around for different cards to see if another product offers a lower interest rate or better incentives.

Recommended: How to Avoid Interest on a Credit Card

What To Do if You Don’t Prequalify

If you don’t prequalify for a credit card, you can proceed in a few ways:

•   Hold off on getting a new card. Too many hard credit inquiries might flag you as a high-risk borrower who’s reliant on credit. If you’ve recently had multiple inquiries on your credit, consider waiting a couple of months before re-applying for a new card.

•   Build your credit score. Card issuers typically look at your credit score to see if it meets its minimum requirement. A higher credit score is a positive indicator that you’re a responsible borrower.

•   Apply for a secured credit card. A secured credit card can be a credit-building card in which you deposit money or collateral in a certain amount. This amount acts as your credit limit.

•   Appeal the decision. If you applied for a credit card and were denied, the issuer must legally inform you of the reason for the denial. If you can provide more information that might sway the issuer in your favor, you can ask them to reexamine your application.

Recommended: Tips for Using a Credit Card Responsibly

Tips for Improving the Likelihood of Approval

Whether you’re getting a credit card for the first time or adding a new card to your rotation, there are a few steps you can take to improve your approval odds.

Reviewing Your Credit Report

Your credit report gives credit card issuers a comprehensive view of your borrowing habits to date. Since it’s a highly scrutinized factor when approving applications, review your credit report before submitting an application.

Check that all accounts, their statuses, and the amounts are accurate. If you spot an account that looks outdated or incorrect, reach out to the credit bureaus immediately to dispute it.

Taking a Look at Your Credit Score

In addition to ensuring your credit report is accurate, evaluate where your credit score stands today. Credit scores are the most common credit card requirements that influence your approval odds. For instance, if a card issuer explicitly states that its minimum credit score required is 720, but your score is 650, your credit card approval odds might be low.

Recommended: Does Applying for a Credit Card Hurt Your Credit Score?

Minimizing Your Debt

Keep your debt-to-income (DTI) ratio as low as possible. Credit issuers use this ratio as a way to determine whether you can afford to pay back potential purchases made on the card. The ratio is based on your aggregate monthly debt amounts divided by your gross monthly income.

Stating All of Your Income

As mentioned above, your income is one of multiple factors used to determine your credit card approval odds. A higher income can reduce your DTI ratio, making you a less risky customer to extend credit to.

You can include various types of income sources on your application. This might include your salary from your full-time job, earnings from a side gig, Social Security benefit payouts, and alimony.

Managing Payment History and Credit Utilization

Staying on top of your existing loan and credit card payments keeps your credit score healthy. This means paying at least the minimum amount due, and making those payments on time every month.

Additionally, be aware of how much of your total credit limit you’re using, compared to how much credit you have access to. This ratio is called your credit utilization ratio. The lower it is, the better. Many financial experts say that no more than 30% or, better still, less than 10% is a good number.

Recommended: When Are Credit Card Payments Due?

Comparing Cards Carefully

With so many credit card products on the market, choosing a credit card that suits your borrowing needs and qualifications can help you find the right card.

Ensure you’re comparing credit cards with the same credit card features between different cards to accurately determine their pros and cons. Some considerations to make when comparing credit cards include:

•   APRs. The annual percentage rate, or APR, is how much you’ll pay in interest if you carry a balance on the card. The lower the interest rate, the better.

•   Balance transfer costs. Some issuers offer a zero-interest balance transfer promotion for a limited period, while others don’t. Similarly, some credit cards charge an additional balance transfer fee.

•   Penalty APRs. If your account becomes delinquent, some card issuers impose a higher penalty APR on your existing balances and future transactions. Make sure you understand how a credit card works and which rules apply.

•   Fees. Certain cards charge an annual fee just for the privilege of carrying the card. This fee is in addition to interest charges you might pay for rolling over a balance, month over month.

•   Rewards program. If you’re after credit card rewards, compare the details of each card’s program. For example, look at whether rewards points or miles are tiered or offered for specific categories or if there’s a flat rewards rate for all purchases.

•   Incentives. You might encounter special promotions, like a welcome bonus or promotional 0% APR. These added perks can factor into your decision.

The Takeaway

Although a credit card approval odds tool can offer broad guidance about whether you’ll be approved for a credit card, it doesn’t replace a card issuer’s underwriting criteria. The credit card company relies on its own underwriting team and algorithms to ultimately decide whether your application is approved. This decision is based on the specific information on your application and your creditworthiness.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Does getting rejected for a credit card hurt my credit?

It depends on the specifics of how you are rejected. A credit card preapproval rejection typically doesn’t hurt your credit since preapprovals usually involve a soft credit check. However, if you move forward with a credit card application that involves a hard credit inquiry, your credit score might temporarily drop, regardless of whether you were approved or denied.

Are credit card approval odds accurate?

Generally, credit card approval odds calculators don’t provide a 100% guarantee that you’ll be approved. There have been reported cases of tools claiming that a consumer has high approval odds for a card, only to get denied upon applying. The card issuer is the only entity that can accurately say whether you’re approved for a credit card.

How can I improve my credit card approval odds?

The best way to get good approval odds for credit cards is to minimize high-risk borrowing practices. One way to achieve this is by building your credit score. Keep your credit balances low, make timely monthly payments, maintain long-standing credit accounts, and avoid opening multiple new lines of credit in a short period.

How do you guarantee credit card approval?

There’s no way to absolutely guarantee credit card approval to any particular card. Card issuers base their decisions on a number of factors, like your credit history, credit score, income, credit utilization, debt-to-income ratio, and more.

Photo credit: iStock/akinbostanci

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOCC-Q424-020

It’s almost become a trope at this point: Your friend’s aunt bought some tech stocks a long time ago, and generated massive returns over the years. Or, your cousin knows somebody who knows somebody who bought some tech stock for a few dollars per share in the 1980s, and now they’re a multimillionaire.

While these anecdotes are enticing, if you’re looking to buy a first tech stock or want to add some diversity to your portfolio, you may find the reality to be slightly different from the stories. There are many kinds of tech stocks, each with its own performance trends, pros, and cons. Here are a few things to know about investing in tech stocks.

Why Investors Are Investing in Technology

In recent decades, much of the growth in the stock market overall has been concentrated in the shares of technology companies. That’s one of the main reasons that investors may be particularly interested in investing in tech stocks or related securities.

As of July 2024, the top five most valuable companies in the S&P 500 are in the tech sector. These firms — Apple, Microsoft, Nvidia, Amazon, and Meta — have an average market capitalization, or overall stock value, more than $1 trillion.

Investors flock to technology companies, especially the previously mentioned tech giants, because they’re often considered solid businesses.

The products of technology companies — especially software companies — are relatively cheap to reproduce but can be quite expensive to buy. Apple, for example, prices iPhones ahead of their competitors, sells a lot of them, and then operates an ecosystem of apps and services that generate steady revenue. Amazon’s success is attributed to the effectiveness of its operations and low prices. For Alphabet, the sheer scope of its networks and the popularity of its services allows them to sell more ads than its competitors.

Aside from the giants that have established business models, many investors pour money into tech companies due to the promise of future earnings. Even when tech companies are not profitable or see regular cash flows, investors will still support the stocks because of the potential for future earnings. Companies like Amazon and Tesla took years before they turned steady profits.

Popular Technology Stocks to Own

The technology industry is incredibly diverse. Beyond the five companies mentioned above, there are many others, including several that comprise the S&P Technology Select Sector Index, a popular market index that tracks the tech space. Below are some of the largest companies that comprise that specific Index, outside of the five tech stocks mentioned above.

How Can You Invest in Tech Stocks?

At the most basic level, you can invest in tech stock by buying the individual stocks of an appealing company. That can be done in the same way as buying any other type of stock or security through a brokerage or investing platform.

Another way to invest in tech is by trading technology-focused exchange-traded funds (ETFs) or mutual funds. Tech ETFs and mutual funds allow investors to diversify their investments in a single security, which may be less risky than buying a specific company’s stock.

If you are interested in a particular tech sector — like artificial intelligence or green tech — you can invest in more targeted funds rather than broad-based technology-focused ETFs.

Different Sectors for Technological Investment

The technology industry is vast, filled with companies specializing in different areas of the market. For an investor, this means it’s possible to diversify, investing in tech stocks across various sectors.

Artificial Intelligence

Artificial intelligence (AI), which refers to ways that computers can process data and automate decision-making that humans would otherwise do, is a burgeoning tech sector. Many companies are operating in this sector, using new technologies to support fields like finance and healthcare. Artificial Intelligence, along with the related field of Machine Learning (ML), has long been one of the most exciting technology areas.

Transportation

Another bustling sector of the industry is transportation. Tech underlies all transportation, and some of the most exciting companies are building electric cars, creating the batteries and software that support the navigation and operational systems in automobiles, or using software to connect drivers and passengers.

💡 Recommended: Investing in Transportation Stocks for Beginners

Streaming

Streaming companies have completely revolutionized the entertainment industry. These companies offer direct-to-consumer content, including shows and movies, that is bundled in a monthly subscription. There are standalone streaming companies, companies that include streaming as an ever-growing part of their business, and companies that build digital and physical infrastructure to support streaming services.

Information Technology

Information technology (IT) is one of the broadest and most valuable sectors of the technology industry. It typically refers to how businesses store, transmit, and use information and data within and between networks of computers.

Semiconductor Technology

Semiconductors are arguably the foundation of all technology. Semiconductor companies make components found in phones, computers, and other electronic devices. The manufacturing process for semiconductors is incredibly precise and expensive, making the industry ruthlessly competitive.

Web 3.0

In recent years, cryptocurrency, blockchain technology, and Web 3.0 have been the focus of many investors. That’s because computer engineers and companies are now developing new technologies that will allow users to interact with the web in a more interactive, personal, and secure way. These new technologies may usher in new opportunities for investors.

💡 Recommended: Web 3.0 Guide for Beginners

Evaluating a Tech Stock Before Investing

When investing, you must carefully evaluate the stocks you’re interested in.

Technology companies, in particular, tend to have high price-to-earnings (P/E) ratios, meaning that the company’s profits may seem low compared to the price of their shares. This is often because investors are expecting rapid future growth.

Other key metrics include price-to-sales, which compares the stock price to the company’s revenue. This is something to consider in the case of a fast-growing company that doesn’t yet have substantial profits.

Another critical factor is the company’s overall revenue growth — the pace at which revenue increases year-over-year or even quarter-over-quarter.

A more detailed metric that can be useful for tech companies is “gross margins,” which is the difference between a company’s revenue or sales and the cost of generating those sales, divided by total revenue. The resulting percentage indicates whether the company can make money on the actual product it sells and how much. If the company’s other costs can go down as a percentage of total revenue, profits can grow more quickly.

💡 Recommended: The Ultimate List of Financial Ratios

Pros of Adding Tech Stocks to a Portfolio

There are many benefits to investing in tech stocks, most notably attractive returns. With artificial intelligence, blockchain, and Web 3.0 technologies on the horizon, there are increasing opportunities to invest in this sector. These are some possible benefits of adding tech stocks to a portfolio.

•   There are many blue chip tech companies. Blue chip stocks typically refer to stocks from long-established companies with good returns. Today’s blue chips include huge tech companies like Apple, Alphabet, and Amazon.

•   Some tech stocks pay dividends. There can be benefits to dividend-paying stocks, including consistent earnings, which might indicate that the company is positioned to deliver strong performance.

•   Investors can buy shares in things they use. Most people use some tech in their daily routines. You might have a smartphone, or a laptop, hop on a social network, or order groceries or clothing online. With a tech stock, investors can buy a little piece of the companies they know and like.

•   It’s easy to diversify in tech. Tech stocks aren’t a monolith. Investors can add diversity to their portfolio by purchasing different aspects of the tech sector, for example, buying stock in social media companies, smartphone glass manufacturers, hardware makers, software companies, and even green tech companies.

A great thing about the tech sector investing space is that there’s so much of it out there, and investors should be able to find something that works for their goals, ambition, and knowledge base.

💡 Recommended: How to Invest in Web 3.0 for Beginners

Cons of Investing in Technology

All stocks come with their own risks and potential downsides. Tech stocks are no different. As with any stock purchase, it’s helpful to do a good amount of research before buying a stock. Take these considerations into account before deciding to pull the trigger on a tech stock.

•   Potential losses. Though the tech sector has been an area of focus for investors as it’s grown in recent decades, investors should also be aware that there’s always the potential for sizable losses, too. Certain segments of the tech space can be volatile, and technology is always changing and falling out of favor. As such, it’s possible that tech stocks could see significant declines in value – sometimes rapidly.

•   The potential for tech backlash. Some experts think increased regulation and government scrutiny could lead to a backlash against tech stocks that could affect their prospects. They cite 2018’s passage of the European Union’s General Data Protection Regulation (GDPR) and Facebook’s hearings before Congress as evidence that even more regulation might be coming in the future. But like many other sectors of the stock market, various tech stocks react differently in the face of volatility.

•   Buying what you know can be complicated. You might have a solid grasp on some social media giants, for example, but some of the nuances of emerging semiconductor firms might be a little harder to wrap your head around. You may have to ask yourself if you want to invest in a company that you might not fully understand.

•   Stocks may be priced too high. Some tech companies, like Amazon and Google, often have shares that venture into the four figures, so for a first-time tech stock investor, those companies may feel out of reach. However, many tech companies occasionally engage in a stock split to decrease their share prices.

How Frequently Should You Invest in Tech Stocks?

The frequency you invest in tech stocks will depend on your individual investment goals and risk tolerance. Some investors may choose to trade tech stocks monthly or quarterly to take advantage of any short-term price fluctuations. Others may invest in tech stocks on a more long-term basis, holding onto their shares for several years to benefit from any potential long-term growth.

What Percentage of Your Portfolio Should Be Tech Stocks?

The percentage of a portfolio allocated to tech stocks differs for every investor. For instance, some specialists might recommend that investors allocate no more than 20-30% of their investment portfolio to tech stocks, but this percentage may be higher or lower depending on the investor’s risk tolerance, investment goals, and other factors.

Mistakes to Avoid When Investing in Tech Stocks

Many investors are drawn to tech stocks because of the potential for a significant return. But the allure of large gains may cause investors to take on too much risk or lose sight of their overall investment goals.

For example, you don’t want to invest in a tech stock just because it’s popular. It’s easy to fear you are missing out when you see a particular stock’s price skyrocket. You may hear about a tech stock lot in the financial media, and you know many people who say they own it, but that doesn’t mean it’s a good investment.

Additionally, you should avoid investing in a stock just because the company is a household name. While sometimes the stocks of well-known companies do well, there are other cases of these companies not being well run and thus not being a good investment.

The Takeaway

The tech sector is vast and getting bigger by the moment as blockchain, artificial intelligence, and other technologies push boundaries. New founders are working on startups in garages and basements, potentially developing the next new thing that could change the world. Investors looking to invest in tech stocks can find a stock or ETF out there that could meet their needs.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

FAQ

Why is investing in tech stocks so popular?

Tech stocks are popular because they are some of the largest and best-performing assets in the financial markets in recent years. As a whole, the technology sector has been one of the fastest growing sectors in the economy. This means that there are a lot of new and innovative companies that are constantly coming out with new products and services. This provides investors with a lot of growth potential.

How can you start investing in tech stocks today?

You can start investing in tech stocks by trading individual stocks, invest in a tech-focused mutual fund or ETF, or invest in a more general stock market index fund that includes a mix of tech and non-tech companies.