Pre approved credit cards
Pre-approved credit cards are a favorite way for credit card companies
to market their service these days, though the method has perhaps
reached saturation point. Terms are different between companies, but
generally, the phrase means what it says: The issuer has pre-approved
you for credit. The credit card company has likely obtained your name
along with thousands of others through a credit bureau and believes you
are a reasonable risk.
Pre-approval does not generally mean there will be no credit check or that there is no application to complete. Some time might pass between when the credit card company bought your name and when you return your application, and the company wants to know if there have been any changes in your status in that period. It also wants to know your current earnings. Negative information may result in your "pre-approved" credit card being disapproved.
No risk taken
Credit card companies are tightly controlled businesses. They know within a fraction of a percentage the probable degree of their losses, and they account for them in the interest rates they charge. They do not make their pre-approved credit card offers by pulling names out of a hat or from the local telephone book.
That credit limit you are offered is not necessarily what you will be given, either. $100,000, or some similar high number may look good on paper, but you're not likely to get it unless your name is Fahd bin Abdelaziz Al Saud, king of Saudi Arabia. Your limit is likely to be considerably less than $5,000 to begin.
Two sides of the coin
What are the benefits of a pre-approved credit card? In most cases, the fact that the company has approached you may mean faster approval. Some offers include 0% interest on balances transferred from other cards, a low introductory APR, and perhaps some rewards. And if there have been no significant changes since the company obtained your name, you will probably get your card.
Disadvantages? You do not know in advance what your spending limit will be. And it's too easy. Large numbers of people declare bankruptcy every year because they have too many cards and total credit balances that they can no longer afford. Even if you could once afford to meet all the monthly payments, life changes. People lose jobs or become ill.
Always leave a cushion for surprises.
Ongoing interest rates
Another disadvantage? Ongoing interest rates, unless you pay balances off each month. Use your card as a form of revolving long-term credit and you could be paying interest on it for many years. Of course, this applies to all credit cards, not just pre-approved credit cards.
What can you do if you're sick and tired of having your mailbox cluttered with what you consider junk mail offerings? There's a central number that is supposed to prevent credit bureaus from selling your name. It is 1 (888) 567-8688 Or you could write to the companies sending the mail, though that might be less effective than stopping the dissemination of your address at source. Or, if this seems like too much trouble, simply recycle their offers and save a tree.