The Indian credit card market is dominated by a few major players along with numerous other banks that are trying hard to reach more customers. With such high competition, credit card issuers keep looking for ways to outdo each other especially in terms of customer acquisition. Offering pre-approval on credit cards is one such way to attract customers.
You would have received emails from banks mentioning that you are pre-approved for a particular credit card. Such emails can be exciting especially if the card offers some benefits you are actively looking for. So what should you do? Should you respond to the offer immediately?
Before you take any rash steps, let us first understand what credit card pre-approval means.
When a bank sends you an email saying that you are pre-approved for a particular credit card, it does not mean that you will get the card as soon as you respond to the mail. Banks have a basic screening process to shortlist the customers who have a fair credit score and could be eligible for the given credit card. If you meet the criteria, your name will be on their list and they will shoot an email to you regarding this. You should think of this as an invitation to apply for the card and not an approval for the same.
If you choose to respond, you can follow the process given on the mail. Most likely, you will be required to fill a detailed application form and submit certain documents. After this, a second level of inquiry will start on your credit profile in order to assess your creditworthiness. For the basic screening, banks take into account only the credit score or some basic information like the city of residence. This does not initiate a hard-pull on your credit report. However, as soon as you apply for the card and submit documents, bank will judge you on the basis of your current salary, number of credit account, credit history, etc. If the bank finds a problem, your application may get rejected. A rejection might also bring down your credit score.
Red Flags to Look Out For
When you see a pre-approved credit card offer in your mail, you should not just sway with the benefits it offers. The mail sent to you has been designed to attract you so it would have the best benefits mentioned and the drawbacks would be hidden. As a smart customer, you must remember that the whole idea behind this email is to lure you into applying for a credit card. Some of the red flags are-
- Low interest credit cards
- Lifetime free credit cards
- Unbelievable joining gifts
This does not mean that all pre-approved credit cards are a sham. The mentioned benefits can be availed but they come with a bunch of terms and conditions. For example, if you are promised a joining voucher worth ₹ 10,000, there are chances that you have to reach a certain spending limit before a specified period in order to be eligible for this voucher. Also, the interest rate on most of the credit cards usually ranges between 30% and 45%. If a bank is offering you a credit card at unbelievably low interest rates then you must look into the conditions that it entails.
Besides these red flags, having too many credit cards is also not advised. If you think you have enough credit cards, there is no need to fall prey to such marketing gimmicks and apply for another one. As the number of credit cards increases in your wallet, so does your financial responsibility. Missing out on a single card payment may lead to a debt burden.
When should you consider a pre-approved credit card offer?
All pre-approved credit cards are not bad. You can consider one such offer if you have only one basic credit card and the offered card comes with benefits that suit your lifestyle. But before you go ahead with the application, always shop around for better alternatives. You might be eligible for another card that offers similar benefits and also packs some more attractive features. However, if you have too much debt on other cards, it will be better to sit this one out and get rid of the existing debt first.
The Bottom Line
Being pre-approved for a credit card does not mean that you can get the card right away. Application starts after you respond to such an offer. You might get rejected based on several other factors, and when this happens your credit score may go down. So, you must proceed with such an offer only after thorough research of the alternatives along with your personal financial priorities at hand.