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Got a call for pre-approved credit card? Run

By Abhishek Agarwal
September 05, 2015 19:17 IST
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No matter how attractive a pre-approved offer may seem, bear in mind that there are indeed no free lunches!

With banks trying to ace each other in the game of customer acquisition, it will be surprising if you, as a customer, do not receive mailers on 'pre approved credit cards' nearly every day! So what should you do when you receive such an offer? Is it worth a look? Or should you just ignore them?

Well here's the lowdown on pre-approved credit cards that you probably have not come across before!

There is no denying the fact that credit is easily available in the form of plastic today. For the uninitiated credit cards are a ticket to heaven, especially if it's a pre-approved one! But before you think it's time for you to buy the new phone you have been eyeing or go on a long cherished vacation with your new card, hold on! Do you really know what is on offer?

What does it mean?

When a bank or a credit card issuer says it has a pre-approved credit card on offer for you, it does not mean you are ready to receive it. What has happened is that the bank has scanned its data base to find out possible customers in the satisfactory CIBIL score band, and sent out a blind mailer, hoping that you will bite the bait!

What the bank has not told you is that if you choose to apply, it will carry out a second level of due diligence to assess your creditworthiness. In this course, if it finds that your credit behaviour has not been up to the mark and your CIBIL score is periliously close to unsatisfactory, your application for the very same credit card may still get rejected.

Besides applying for a credit card, will result in a hard inquiry thus bringing down your CIBIL score temporarily.

The red flags

Credit card issuers try to lure customers by telling you that you are being offered a low rate of interest and that your credit card will be 'free for a lifetime'. But as a discerning customer you need to know that these are nothing but marketing gimmicks.

A lifetime free credit card means that your annual fee has been waived off for an initial period (that differs from bank to bank). Also the annual percentage rate on your credit card is as high as 36-40 per cent, so there is no question of lower interest rates as all players must remain competitive.

Besides if you have more than one credit card on which you have not paid off your total outstanding you are still pretty much in a debt trap and digging yourself an even bigger grave!

You must also watch out for possibility of scams on pre-approved cards. For instance, things like a near time expiration date, reluctance to spell out terms and conditions, no proper contact information or an upfront payment before you start using the card are sure signs of disaster and should be avoided at any cost.

When to consider such an offer

While the entire point that we are trying to make here is that pre-approved credit cards are not such a good idea, there may actually be times when you may just give it a second look, and not trash a mail simply because it carries the dreaded words 'pre-approved'. Say you are a customer using a single credit card. In spite of making timely repayments, you are not quite happy with the cash backs or the rewards that are being offered by your current card.

In such cases you may just give such offers a second look and follow it up with a phone call or an email to the said authorities. If you find that the cash backs or the rewards are indeed much more attractive than that on your present card, you can go ahead and make that application for a new credit card.

But do make sure that you carry out enough due diligence before you even think of applying for a new card.

If you have unpaid balances on your current credit card, put blinders on and concentrate on repaying your debt. Do bear in mind, that credit cards are the costliest form of unsecured credit. If not used with adequate cauion not only will you find yourself in the quicksand of never ending debt, you will also have jeopardised your CIBIL score.

Unpaid or an ever revolving balance on your credit card, will make a big dent in your CIBIL score and report, thereby closing doors when you really need to access credit. So do not use pre-approved credit card offers as an escape route.

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Abhishek Agarwal
Related News: CIBIL