Preapproved credit cards and credit lines, are they good for you?

Preapproved credit cards and credit lines, are they good for you?

Preapproved credit cards and credit lines, are they good for you?

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Credit cards are one of the most used means of payment in the world. With this method you can make any purchase, and pay for it in later. In other words the bank loans you the money.

The idea seems very simple in concept, but in practice the misuse of credit cards can lead to large amounts of debt. This is because credit cards involve other basic concepts like minimum payment, interests, credit line limit; statement closing date and balance; concepts which might not be as simple.

Due to this complexity, to give you access to this type of product, the banks evaluate your credit history; they inquire with other institutions if you have any outstanding debt or delinquent payments, and based on their policies decide if you get to receive a credit card or not.

The process, depending on the bank, can be long and tedious and this is why some banks offer pre-approved credit cards. However this can be counter-productive because it’s usually just a marketing strategy to make consumers accept the credit.

If you ever receive a call from the bank informing you that you have a pre-approved credit card, or worse, if you get an actual credit card sent to your home, there’s a lot to consider before taking any action.

Do you really need it?

If you didn’t apply for the credit, you probably don’t need it. So even if the bank is offering it to you, you don’t have to accept it. In theory, the bank is offering the credit to you because in its database you are identified as a responsible user, but in reality sometimes sales executives receive commissions for every credit accepted, and yours can be one of those.

So the next time you get a pre-approved credit, ask yourself if you really need it, and if you can pay it back. If not, then decline it, simple as that.

The best option

Jorge Torres Góngora, General Director of Financial Education of Mexico’s National Commission for the Protection Financial Services’ Users (CONDUSEF in Spanish), affirms that for the banks, a pre-approved card implies a higher risk, because the bank does not know the client well.  

This is one of the reasons these products won’t offer you the best interest rate available, and that’s why it’s better to approach the bank directly and ask for different options and compare them. It is very easy to get seduced by the readiness of the pre-approval, but money is a very delicate affair, so take your time.

Beware of fraud

We cannot live in endless distrust, but we can’t deny our reality either. Crime is a very common thing, and delinquents tend to reinvent themselves constantly.

A pre-approved credit card may sometimes be an instrument of fraud from people that are not part of financial institutions. This is why you should be attentive of the characteristics that give them away:

– If they ask you for money, don’t give it to them

– If they ask you for personal information, make sure you are dealing with an official representant of the bank you are being approached by

Call them back, using the official contact information from the bank’s published website, not the number they called you from

It might take longer, but it’s better to go to a bank branch office and make the procedure in person to avoid misunderstandings.

To the client whatever they ask…even when they don’t ask

There are many cases of credits that are approved and granted without the client’s solicitation, but not many people know that at least in Mexico, this is represents a motive to penalize banks, according to the Transparency and Ordering of Financial Services law  (Ley para la Transparencia y Ordenamiento de los Servicios Financieros.)

Under this law the banks that incur in this type of practices can face penalties in case you decide to report them. Another aspect concerning this subject, is the right that the clients have to avoid receiving these offers, stipulated on the 8th article of the Protection and Defense of Financial Services’ Users law (Ley de Protección y Defensa al Usuario de Servicios Financieros.) CONDUSEF has in its database information of the users of the Financial Mexican System that asked not to be bothered with new offers.

Everyone spends their money however it pleases them

At the end of the day, everyone does with their money as they please. If you get an offer of a pre-approved credit, and you analyzed it, and agree with its terms, even if you didn’t apply for it, and you can pay it back, go for it. If you manage this credit correctly it will boost your credit history.

If this publication got to you too late because you already fell for the credit and are still paying for it, we hope the torture ends soon. If it’s any consolation, you are not the only one, on the first trimester of 2016 alone, the average debt in credit cards in Mexico  was for more than 130 thousand pesos.