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Preapproved Credit Card Offers On the Rise—But What Do They Really Mean?

[Monday, July 1st, 2013]

When people go to open their mailboxes these days, they may notice an increase in one type of junk mail: preapproved credit card offers.

After the Credit Card Accountability, Responsibility and Disclosure Act (commonly known as the Credit CARD Act) took effect in February 2010, there was a decrease in these offers as credit card issuers became pickier about who they approved for new lines of credit. Certain types of marketing—notably, marketing to young people without incomes—was restricted by the CARD Act, and many creditors reevaluated their preapproved offer policies.

However, these offers are once again on the rise. The Mintel Group says that direct-mail credit card offers increased by a whopping 18.5% in the first quarter of 2013, compared with the previous quarter. Most of these offers are “preapproved”—leading consumers to think that all they have to do is fill out the form, and the credit card is theirs. But this is far from the truth. Applicants must still be screened before being approved for any credit card offer that comes in the mail, no matter what marketing jargon appears on the envelope.

The fact is, including the word “preapproved” in a credit card offer doesn’t really mean anything for consumers – but it has been shown to be incredibly effective marketing. One study said the response rate was 77% higher for “preapproved” offers versus those that did not indicate preapproved status. When a consumer with fair credit or poor credit gets a preapproved offer for a platinum credit card, it makes them feel that their credit must have improved—or that a fair credit score is good enough for an elite credit card.

People with fair credit are often the targets of these offers for two reasons: one, they are likely to have a history of running up debts and carrying balances from month to month (which means more interest and fees for the credit card company), and two, these offers generally come with high interest rates. Applying for a “preapproved” offer with a high APR instead of shopping around for the best rate can be a costly mistake.

So remember—getting an offer for a platinum or gold credit card doesn’t mean your credit is better than you thought, or that the card is a good deal. If you are in the market for a new credit card, shop around—interest rates are falling, so don’t fall for the next preapproved credit card offer that lands in your mailbox.

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