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Should you opt for pre-approved credit cards?

Should you opt for pre-approved credit cards?

Nowadays, a number of banks are offering pre-approved credit cards to select customers. If you have an active credit profile, chances are you might be receiving a number of such pre-approved offers via SMS, email or IVR. Sales representatives from banks or financial marketplaces may also call you to inform you about pre-approved card offers available to you and encourage you to apply for the same.

It may be tempting to get a new credit card with exciting features and benefits, especially when you have a pre-approval. However, before you apply for the card or give consent to an agent to proceed with the application, you must understand a few things about pre-approved credit cards.

What is a pre-approved credit card?

Having pre-approval for a credit card means that the issuer has checked your credit score, based on which, they have decided that you meet the basic approval criteria for their credit card. Pre-approvals may also be considered as an advertisement for cards, enticing users to apply. Sometimes, banks may also add introductory offers or welcome vouchers to add weight to their pre-approved card offers.

While most pre-approved customers would get credit cards easily, you must understand that it is not a guarantee that your application will not be rejected at a later stage. In addition to your credit score and credit behaviour, several other factors come into play while processing your credit card application.

When you accept the offer and continue with card application, the bank then starts the next stage of due diligence process. If, at this stage, the issuer finds you to be a risky borrower, you might not get approved. So, despite having a pre-approved offer, you application may be rejected basis your employment, income, location or other internal policies of the issuer.

How do banks determine your eligibility for pre-approved credit cards?

Generally, you would get pre-approved credit card offers from banks you are already associated with. Based on your history with them, such banks are able to judge your creditworthiness and hence might extend such offers to you. For example, if you have responsibly serviced a loan in the past or if you maintain high balance in your savings account.

Sometimes, you might get pre-approved card offers from financial marketplaces or banks you have never been associated with. You are likely to receive pre-approved offers from multiple card issuers if you meet most of these criteria:

  • You have an excellent credit score
  • You work with a renowned employer and have a stable income
  • You have been responsible with your previous loan repayments
  • You have an excellent payment record for your current loans and credit cards
  • You never miss or delay your payments

Should you accept pre-approved credit card offers?

There are certain benefits that come with a pre-approved credit card. Since a primary screening has already been completed by the bank, the application processing is likely to be quicker for such cards. Moreover, banks might also extend additional benefits with pre-approved offers. It could help consumers who quickly need a new card to cover an emergency with the additional credit limit.

However, you should not take a card just because you are pre-approved for it or to avail an introductory offer. You must ask yourself the following questions before opting:

  • Do I really need a credit card right now?
  • What are the features and benefits of the card and does it align with my spending preferences?
  • This feature looks great. But are there any terms and conditions associated with it?
  • What is the annual fee? Would I be comfortable paying this amount every year?
  • I already have a card with similar features. Do I really need this card? Is it better?

A pre-approved offer holds value for consumers who were facing difficulty in getting approval for a card for a long time. However, if you have a good credit profile and would be eligible for a number of cards, you must compare your options and then choose. If you already own multiple credit cards with outstanding debts on some, it could be due to reckless usage. In such a situation, it is best to avoid opening a new credit card account as it could lead you into deeper debt. Manage your existing cards responsibly before choosing a new one.

Also Read: Fallen into a credit card debt trap? Here are strategies to pay off your debt

The right credit card for you is one that helps you avail maximum saving on your preferred spending category. When a card’s features align with your spending habits, it is easier to get maximum value out of the card. Also, consider the fees and charges to understand whether the overall benefits offered on the card justify the fee charged.

Explore your options cautiously and choose a credit card that helps you avail maximum benefits, not the one that you are pre-approved for.

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