According to the seemingly-innocent envelope sitting on your kitchen table, you’ve been pre-approved for a new credit card. The bold type, flashy colors, and excited exclamation points lure you into a daze. You are The Chosen One. Obviously, the credit card gods have singled you out as someone worthy of high rewards and low fees, someone who deserves free trips to Ibiza and back on the 25,000 miles you earned shopping at the grocery store. Or maybe, just maybe, you haven’t been chosen at all.
Maybe you’ve been targeted.
If you’ve ever seen a bug get zapped by an electric light and wondered how it could be stupid enough to fly willingly to its own death, you might want to jump off of your high horse. People are just as easily lured to their financial deaths by shiny credit cards offering deals which are too good to be true. Unlike bugs, however, people can read, so sit down, buckle-up, and learn why that pre-approved credit card offer is best left in the recycling bin.
1. 0% APR(*)
The 0% Introductory APR sounds great, but only if you ignore the fine print, usually marked by an asterisk. Many of these insanely low interest rates only apply to balance transfers or have short introductory time periods before jumping to a higher interest rate.
In some cases, a single late payment can change that 0% to 12% or 15%, which is a high price to pay for a simple mistake. In others, the deal is only eligible for people with excellent credit scores, and the interest rate you will be offered upon applying could be much higher.
Our advice: read the fine print, and if you can’t understand the fine print, toss it.
2. Not All That Glitters is Gold
So not only have you been chosen for a new credit card, you have been Chosen for the Platinum Deluxe Diamond Credit Card 2.0, or something like that. Be wary of cards named after precious metals and gems. A “Diamond”, “Platinum”, or “Gold” in the title sounds prestigious, but that doesn’t mean you’re getting a good deal.
In fact, the designation of Gold or Diamond is usually nothing more than a marketing ploy, designed to trick consumers into thinking they’re special or more financially-savvy than their friends. You, however, aren’t going to fall for it!
Our advice: pick your cards based on their interest rates and fee terms, not on how cool they sound.
3. Rewards Programs and Sign-Up Bonuses
Banks and credit card companies are businesses first and foremost, and consumers are their profit-generators. They make money when you spend money. The more you spend (and the less you pay back), the more they make on interest rates and fees. Keep this in mind whenever you come across an insanely good rewards program or sign-up bonus.
Usually the terms on the reward or bonus require that you spend a certain amount of money on certain things in a certain amount of time, and usually an amount of money you normally wouldn’t spend in the given time-frame. The credit card company is motivating you to spend more, not save more, which means you’re more likely to accumulate debt than gain any type of savings. If you’re already spending the required-amount and type of money regularly and can pay off the balance in-full each month, go for it.
Our advice: if the deal requires you to spend more money than you normally would, it’s not a deal!
4. Pre-Approval is Not Approval
Being pre-approved for a credit card just means that you fit the general criteria for that card, such as a certain credit score or number of accounts. However, if you send in your application and the credit card company or bank doesn’t like what they see when they take a closer look at your credit, you might receive the card without the advertised benefits that attracted you in the first place, or they might even outright deny your application.
The best way to avoid these pitfalls is to be honest with yourself. Do you have a good credit score and credit history? Were you surprised to receive such a great offer in the mail? If the deal seems too good to be true, it probably is—especially if your credit score is lower than 700.
Applying for a credit card with bad credit will trigger a hard inquiry, possibly hurting your credit even more. Worse, the card you receive probably won’t have the great rewards program or low interest rate advertised on the pre-approval letter.
Our advice: even if you have great credit or have been meaning to apply for a new credit card, you should check online for a better deal because let’s be honest, it probably exists.