It is common of late to receive calls, messages or emails offering you credit cards or even loans. You are often being told that these are special offers and given to only a chosen few. In addition, it is also conveyed that it is a pre-approved loan/ card.
These offers seem enticing and many individuals just apply for the credit product without giving a second thought, not bothering to read the terms and conditions of the said offer. We bring to you an example of a person who applied for a card after seeing an email, but ended up being disappointed.
In April 2018, Thiagaraj received a mail from one of the banks who offered him a pre-approved Credit Card. Thinking he was among the few chosen people to receive this card, he immediately applied for the credit card as the benefits like Cashback and other Partnership Deals looked attractive. But after a few days, he was disappointed to learn his application was rejected, in spite of the offer being pre-approved.
So, in this context, it is essential to know what is credit card approval all about and what it means for an individual who is applying for a pre-approved credit card.
What is Credit Card Pre-Approval?
Banks and other credit card issuers are always on the lookout to increase their customer base and find methods to solicit customers. Credit Card pre-approval is one of the many marketing strategies generally used by such companies.
Banks/ Credit Card issuers use their data to draw up a list of individuals who can fulfill their eligibility criteria for issuing a credit card based on data available with them. It could be banking behavior, social media interactions, your earlier applications for credit products, city of residence, etc. Once they have this list, communication is sent out to prospective customers explaining benefits of the credit card on offer.
This is comparable to cold calls that generally Sales teams of many products do to build their customer base.
Pre-approval here signifies that the card issuer considers you as a potential customer and you may be meeting some of the criteria required for issue of a credit card.
Should You Apply for Credit Cards Offered by Pre-Approval?
As we said it earlier, sending emails and messages on pre-approval of credit cards are mostly a method of building the user base for card issuers. It is therefore very important to check on the offer sent in before applying for the pre-Approval Credit Card.
This being a marketing exercise, the card issuer will mainly let you know about the benefits of the card on email which could make the card very attractive to you. It could talk about benefits like Cashbacks, Discounts or Partnership Deals, Attractive reward points, etc.
While you get attracted by all these, it is also important to know about the other conditions associated with the card like Joining Fee or Annual Fee (if any), elements required to fulfill certain conditions like getting a free voucher or bonus points.
Additional Reading: All You Need to Know About the Credit Card Approval Process
Many cards offer benefits like Concierge Services or Lounge Access at airports but these benefits might not come for free. These kind of benefits are generally aimed at business travelers who do not mind paying extra for the convenience and comfort. But for an individual who mostly uses the card for offline and online shopping, these benefits won’t be of much use.
It would be wrong to say that the pre-approval of credit cards is a sham and no individual should apply for credit card through this method.
What is needed is proper due diligence from the individual's end to verify if the suggested card meets his/ her usage needs. If you are an existing card user, you may want to compare it with your existing card and its benefits/ charges. After a thorough analysis, if you find it beneficial enough, you may go ahead and apply for the card.
At times, there may be some good deals on the cards, but you need to do a due diligence before applying for it.
Look out for Red Flags
Some of the red flags one should watch out for are:
Joining deals like a Free Air Ticket on a Travel Credit Card
LifeTime Free Premium Credit Cards
Very Low-Interest Credit Cards
Offer of Free Add-On cards
These are just some examples of how the pre-approval may be packaged.
How Do You Apply For Pre-Approved Credit Cards? And What Is The Process Followed?
If you have received a pre-approval from a credit card issuer and you wish to take the process forward after doing a proper due-diligence of all the terms and conditions involved with the card, you would need to submit all necessary documents as demanded by the credit card issuer.
The documents generally called for are:
Proof of Identity
Proof of Residence
Copy of PAN
Once the credit card company gets your application, your application will be treated like any other applicant and the company will look at your credit score firstly and then look at your income and repayment criteria to make the decision of approving or rejecting the application.
What is the Effect on Your Credit Score When you Apply for a Pre-Approved Credit Cards?
You may be thinking that just because it was a pre-approved card, your credit score would not be affected when you finally apply for the offer, as the offer was made by the card issuer. Unfortunately, it would not mean that.
When you finally apply for the card, your application will be treated like any other normal application and the credit card issuer will make a hard inquiry on your credit score and report. So, it is good not to apply for a credit card just because you have a pre-approval.
Apply for a credit card when you have the need for one and feel you are responsible enough to pay prompt payments on credit card outstanding statements.