Pre-Approved Credit Offers: Playing Make-Believe
Choosing Credit Card
You will barely find at least a couple of credit consumers who love getting tons of pre-approved credit card offers by mail. On the one hand, it is convenient. You do not need to go to a bank or even trouble yourself to choose an appropriate plastic for you. A credit card literally drops in your laps.
Besides, you are already pre-approved. You have good chances to get this enticing offer. But if you are more or less experienced credit card holder knows all the pitfalls of signing for a pre-approved offer. And you will at least carefully read the fine print and think twice before signing up for card. So, what traps can you get into having signed up for a pre-approved credit offer?
The most common pitfall is changing the terms. You can get an offer with unbelievably low rates and high credit limits. You complete the application form and send it. Later on when you get the card, you find out that the interest is far from the one you signed up for and the credit limit turned out to be twice lower. You realize that you badly want to throw this plastic away or burn it. But you know - once you cancel a plastic, your credit score gets damaged. True?
Not exactly. Let's analyze what precisely happens when you close a credit account and how it can affect your score.
When you close a credit account, you erase this credit card payment history and increase your credit utilization or debt-to-credit ratio. In other words, you cut down your total credit available, but the balances remain the same. This is what can hurt your FICO score. Once you have never activated the plastic, you have no balance on it. No payment history to erase, and no damage to your score.
We have found out that a pre-approved offer is not that scary and a pure shrinking violet to your credit score until the card is inactive. But can such a deal be of use?
Say, you have discovered an airline credit card with an activation number in your mail box. The offer is really tempting, with reasonable interest rate, bonus miles, pretty high credit limit and no annual fee. You are already pre-approved by the bank and you are just about to go on a trip to Europe or Asia, or any other place. So hard to resist such a temptation, huh? Be strong and think it over again.
You, most probably, already own a couple of plastics. And your score is not far from perfection, since you got a pre-approved frequent flyer card. Most rewards plastics - cash back, airmiles, gasoline, point rewards and hotel rewards cards are available to people with good or excellent credit score. Just look at your cards' features and options. They are undoubtedly, beneficial. So, why would you need another plastic in your wallet?
In fact, if you decide to sign up for the pre-approved offer you have got, you do not risk damaging your FICO score dramatically, or ruining your credit history. Even if the card comes with a higher interest and different rewards scheme - not as profitable, as it was supposed to be, you can always cancel the plastic without even activating it.
But in case the offer turns out to be a good credit card, you can keep it at least for emergency cases. So, pre-approved offers are not that dangerous. But most of them are trashy, it is a fact. The choice is yours!
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