With reports that the economy is rebounding, credit card offers are flooding mailboxes. In fact, according to a study conducted by the Mintel Group, mailed credit card offers had risen over 18 percent during the first quarter of 2013, compared to the previous quarter. A study conducted by GoBankingRates.com, a credit-card industry tracker, showed that when credit card offers contain the word “preapproval,” the response rate is as high as 77 percent, which is why the majority of the latest offers arriving in mailboxes are preapproval offers.
Even for Those with Less than Perfect Credit
According to TransUnion, one of the leading credit reporting agencies, 54 percent of the cards issued to those who received mailed offers were people with less-than-perfect credit. Although this could indicate that the economy is improving, many consumer advocate groups are concerned that offers enticing customers to sign up for cards could result in them incurring debt they cannot afford. These groups warn consumers to review all offers they receive in the mail closely.
Preapproval May Be Misleading
Many consumers who receive the preapproved credit card offers in the mail are finding that they are not, in fact, preapproved. In fact, according to Cardhub.com, another credit card industry tracing site, the rejection rate for those who receive the preapproved offers is as high as 30 percent, even among borrowers with substantial income. One reason for the high rejection rate could be that the offer was generated based on information in one report, but the card issuer may use a combination of two or more reports to determine credit eligibility. In addition to the high rejection rate, many of the preapproval offers come with very high interest rates, making them a poor choice for consumers.
Applying for a credit card can have a negative impact on a credit score, so consumer advocate groups warn borrowers to be selective when applying for new cards. The offers are becoming more competitive, with borrowers who have excellent credit ratings seeing interest rates almost 2 percent lower than offers sent out in previous years. Some companies offer zero percent interest for balance transfers for a limited time, usually three to six months, and these types of offers may be beneficial to consumers who wish to reduce their credit card debt. With no interest charges, the full monthly payment is applied to the principal balance, so the consumer can pay the card off more quickly.
Before responding to a preapproved credit card offer, read the fine print and review all the terms included with the offer before sending in the application. For those with limited income, or who are struggling financially, incurring more debt in the form of a credit card could lead to further financial difficulty, so it is critical for those consumers to shred any credit card offer that arrives in the mail. By following good credit management, you can keep yourself out of financial trouble and maintain your good credit rating.