A credit card is an important and widely available source of funds whenever required. It facilitates the use of funds of the facility offering company for your business. Companies offering credit cards sometimes approach customers with an offer of pre-approved credit cards.
The company lends funds on the condition that they will be returned within a specified period. If it is not returned within the period, then a certain percentage of interest is charged. In Canada, obtaining a credit card is generally a straightforward process. However, if a Canadian is pre-approved for a credit card, then it is like a treasure for him.
What is a Pre-Approved Credit Card Mean?
If you received an email with the text that you are pre-approved for a credit card, then it is surely a treasure for you. This text typically means that your credit score and financial stability match the initial eligibility criteria for a credit card. Lenders assess credit history and collect financial data associated with the account to make informed decisions. After careful pre-screening, they are determined to select you as a good candidate. Finally, they offer their credit cards to you. The criteria for eligibility tend to be uniform across different banks and credit card companies. However, some companies can also change their criteria of offering credit card facilities according to their needs.
For Canadians, taking credit cards is nothing to worry about. They have to fulfil a few demands. Firstly, the person should be 18 years old. Secondly, he should have a Canadian bank account with funds deposited in it. Furthermore, sometimes, you have to show the source of funds in your account to repay debts. With all the approvals, one can get his credit card.
Most importantly, here is a question: Should you accept the offer of a pre-approved credit card or not?
According to some reliable sources of data, a recent study has found something interesting. It has come to light that a majority, exceeding 70 percent, of Canadians employ credit cards as their preferred method of settling recurring payments. Out of this, if we go deeper, 40 per cent is used in stores and shops, while 60 per cent is used in online modes. The use of credit cards is either positive or negative for someone’s financial health. Positive, if you are carefully handling it with timely payment of credit taken. Conversely, maintaining a negative perspective on the return period and persisting in spending can lead to unfavourable outcomes.
Answering the question of accepting pre-approved credit card offers is different from person to person. The company is offering you because it finds you creditworthy. Let’s see the benefits if you accept the offer.
● Building Credit – A credit card is a good way to build one’s credit rating. Responsible use of credit cards can boost someone’s credit score. However, just owning a credit card will not improve your profile. You will need to show your relation with your previous credit transactions. It may include timely payment of credit and loans without defaults.
● Card-related rewards and perks – Sometimes, pre-approved credit cards come with special rewards and perks. For instance, say, a card may offer a slightly lower interest rate than another for the first six months. They may provide credit cards without joining fees. Moreover, there are no annual fees for the first year or the initial few years. It may also include a points system, which can be transferred and used for discounts on travelling and shopping. Furthermore, cashback is a big source of attraction, and it may come with a higher cashback percentage.
● Credit Utilization Ratio – You must have heard about Credit Utilization Ratio. It is measured by dividing one’s total debt by the overall credit limit and multiplying it by 100. The result would be your CUR. Accepting a pre-approved credit card will increase your total available credit, which will lower your CUR. This lower ratio will mark a positive on your credit score profile.
These reasons are the main attraction points for Canadians regarding a pre-approved credit card.
So, in the above paragraph, you have gone through the benefits of saying yes to a pre-approved credit card. However, understanding the consequences of accepting this card and saying no is as important as saying yes.
Despite having so many benefits also other than those mentioned there are some reasons which may make you say no. These reasons are mentioned as follows.
● A great effect on your one’s credit score – Sometimes, what happens is lenders conduct a strict enquiry about your profile when you accept a pre-approved offer. This could influence your credit score if you are in search of an additional loan. It wouldn’t be sensible to accept the card if you have no need for an additional loan. This can be explained using an example. Suppose you are planning to take a loan to buy a house in the near future. Therefore, you might decide to deny an additional card that would risk your credit score.
● An increment to debt load – If we ask about financial management, self-awareness is the key to managing it well. If you are using credit cards for many transactions and not paying them off on time, then it would increase your debt. Increased debt is the result of careless use of the card, which will ultimately affect and resist your financial management.
● Higher Interest Rates – Higher interest rates are directly related to the increment of debt and delay in paying them off. Even with the benefit of a discount, the interest for not paying off the debts will harm even more than it. Things rate will consistently increase with the rise in outstanding balance. Moreover, in this situation, you will find yourself in a circle of debt burden.
Difference Between Pre-Approved And Pre-Qualified Credit Cards
Whether it’s a pre-approved credit card or a pre-qualified credit card, both result from your credit profile meeting the initial eligibility criteria for becoming a cardholder. Despite the interchangeable use of these terms, there are some characteristics that one should bear in mind. These characteristics are –
1. Both card offers are a result of qualifying the initial stages of a lender to become a cardholder.
2. A pre-approved credit card generally has a higher chance of qualifying the application than a pre-qualified one. Nevertheless, the ultimate decision rests with the issuer. He can compromise if he thinks to do so.
3. Getting a pre-approved or pre-qualified offer is not a conclusive sign of getting your application a guarantee.
4. Being pre-qualified gives you a sense of getting approved if you apply and take the next steps.
Here, we have gone through a detailed structure of pre-approved credit cards and what this means to a Canadian. Canadian people tend to live free with a good standard of living. For this reason, they have made the use of credit cards a part of their life. This is a source of funds that will allow you to spend even when you lack money. However, to avoid harming your financial health and credit profile, it is necessary to pay off it on time. This will make a good credit profile and will prevent you from getting under the debt burden and the chances of higher tax charges. Hence, a pre-approved credit card can be a treasure for someone if used wisely.