PREAPPROVED CREDIT CARDS

Most everyone has gotten a credit card offer in the mail that claims "you have been pre-approved to receive our credit card." It seems a little shifty that some faceless company is offering you unsolicited credit; but, still we are all tempted to fill out the application and await the arrival of the little plastic card that is our ticket to shopping happiness (until the bill arrives).  Before you get out the pen and begin filling out the paperwork, consider where it came from, what it is really offering, and what it is going to cost you.

WHAT ARE THEY AND WHERE DO THEY COME FROM?

Pre-approved credit cards are unsolicited offers sent to consumers to receive a credit card from a specific company.  Since you didn't request an application, you may wonder how an offer for a pre-approved credit card came addressed specifically to you.  There are three major credit bureaus that track consumers credit histories.  They are Trans Union, Equifax, and Experian. 

In order to stay competitive, credit card companies will offer credit to consumers that fit a model they have established.  Basically, they determine what type of consumer they want to target and then request a list of names from the credit bureau's databases that fit their parameters.  Then, they send out pre-approved offers to the consumers on the list hoping to hook a new creditor. 

Sometimes, credit card companies are looking for consumers with good credit scores hoping to lure them away from another company.  Other times they will target people with low credit scores with the hopes of enticing them to sign up for a pre-approved card with outrageously high fees and interest.  The hope is that a person desperate for a credit card will agree to severe costly terms. 

ARE THEY WORTH THE PAPER THEY ARE PRINTED ON?

The offer being sent is merely based on your name being pulled from a database because you met the credit card company's parameters. Also, by the time a pre-approved credit card offer has reached your doorstep it has been several months since your name was pulled from the credit bureau database and your financial situation could have changed.  All this means that a credit card would be foolhardy to simply offer you a credit card with no further information or investigation.  And, the credit card companies know this because the offer comes with an application and not a nice shiny new credit card. 

So, that pre-approved stamped on the envelope is not quite accurate.  It is more of an advertising ploy or gimmick.  Actually, a more accurate description would be "preliminary approval."  The credit card company has targeted you for an offer because you have meets some preliminary requirements they have to be a cardholder.  They now want you to fill out a detailed application and go through another credit screening to be sure your score hasn't drastically changed since they first got your name from the credit bureau database.  And, if you meet all the requirements of this second round and agree to the terms of their contract, you will be finally approved to receive their credit card.  If you don't mind being the target of their slightly deceptive advertising gimmick, then some of the offers you get may be reviewing. 

WHAT TO WATCH OUT FOR?

As enticing as these offers can seem, there are some things to watch out for.  You need to realistically consider why you got the offer?  If you have a good credit score and pay your bills on time, then you could be getting the offer because the company considers you a good candidate for their credit card.  In such a case, read offers looking for incentives and perks they will offer to entice you.  They may offer a lower interest rate or no interest on any balances you transfer from other cards.  They may offer rewards or cash back offers. 

On the other hand, if you have poor credit and a lot of debt, then they may try getting you to apply for a card with outrageous annual fees and huge interest rates and a very low credit limit.  In fact, some of these "pre-approved" offers have such high fees and such low credit limits that by the time they charge all the fees to your card you credit limit is down to $50 or less.  You will basically become a cash cow for the credit card company with no true benefits to you.  If you are honest with yourself about your credit status, then you can honestly evaluate the benefit of any pre-approved credit card.