May 14, 2012

Preapproved Credit Cards for Dummies

It’s like Christmas in the mail. You open your mailbox and there, right in front of you, are preapproved card offers just awaiting your response. Are they too good to be true? Banks just don’t approve people in advance to get a line of credit, do they?  In a few short minutes you’ll know the answers to these and many more questions you may have.

What Are Pre Approved Credit Card Offers?

Preapproved credit cards are basically the offers to apply for a particular credit card that you receive in the mail.  Because banks or credit unions have a specific niche in mind when they send these out, chances are you fell into their target audience.  They will do analysis on customer base, coming up with data on which people are more likely to establish a line of credit with their company and which demographics are lacking.

For instance, let’s say that a credit card company did some market research and found out that 75% of their customers used their credit cards to shop for pet food and supplies.  In order to expand further into that market, the company would purchase a mailing list from a source like a pet lover’s magazine or members of PETA.  Figuring that these people would love pets and that their credit card holders love pets, the company would then send out pre approved credit card letters to all on that list.

How Do Preapproved Credit Cards Work?

The term itself is a bit misleading.  It’s not that you are automatically approved, it’s just that you’ve fallen into the company’s marketing crosshairs and have met a minimum requirement they’ve set.  Typically, this requirement is something like a certain credit score or initial deposit or some demographic indicators.

After a person receives a preapproved card offer he\she still needs to fill the application that is enclosed in the envelope and send it back to the bank. To your surprise the bank still have an option to decline your application despite the fact that you were preapproved.

To put it quite simply, the only thing you’ve really skipped is the choosing a credit card process.  The card is pre approved in a manner of speaking, but not in the manner in which people often believe.

Are these Offers So Good?

Besides the ease that comes with the credit card offer coming directly to you, preapproved credit cards can be good for a number of reasons:

  • They are good for building a credit score.  If you haven’t had any credit before or are trying to improve your score, they can be a good way to do so by using it responsibly. Sometimes pre approved offers targeted specifically for bad or fair credit come into your mailbox right after your application was declined by another bank.
  • They can have the same variety of advantages as all other credit cards – reward incentives, low interest rates, high limits, zero percent interest or just low APR, cash back programs.

In fact, one of the only drawbacks to preapproved credit cards is that it was not chosen by you – so it is always good to shop around to check if there are any better options for you in the market.  Since the cards still require an application and you can get a decline, you are not putting yourself at more risk applying for another card, if you chose it according to your credit score.

Identity theft in case of pre approved credit cards is not more likely than usual, because the application process goes in a regular way, and your card will be sent to you by mail not activated.

Why I’ m not getting Credit Card offering letters?

If you are not currently receiving offers in the mail, there are a few steps you can take to ensure that you’ll receive any offers you want.

  • Obtain a credit rating.  You can do so with the government for free once per year or you can sign up with a company that tells you your credit score.
  • Check the credit report for any erroneous charges.
  • Dispute these charges with the three major credit unions.  They must remove them if they can’t prove them.  This will make you more likely to receive good offers.
  • Visit the Opt Out Prescreen site, send and “opt in” request to receive offers and fill out any information required.
  • Contact your bank or credit union and ask if they have any offers available that you may qualify for.

I Got Denied, Now What?

You have to be careful with credit card denials as they show up on your credit score.  If you gain too many of these negative marks against your credit rating, other companies will be more likely to deny your applications in the future.

To prevent this from happening, after one or two denials you should go through the steps mentioned in the section above about checking your credit score and then work on building better credit.

How Can I Increase My Credit Score?

There are a number of ways to improve your credit score:

  • Be responsible with your credit cards; don’t overuse them but don’t let them rust
  • Pay all bills on time
  • Setup payment reminders
  • Don’t open new accounts rapidly, but rather slowly and responsibly
  • Pay down your debt
  • Keep all balances low
  • Purchase something with credit that you can pay down right away and then do so
  • Visit a credit counselor

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