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I am frequently assailed by unsolicited letters from various credit card companies informing me that I am pre-qualified for credit cards with various goodies such as no annual fee or 0% APR for around a year.

I already have a credit card with a respectable credit limit and I am not in the position where I will need additional credit to meet my financial obligations, now or in the foreseeable future. My existing credit card company has increased my credit limit a few times in the past year, and I currently see no reason to switch or close the account.

It is my understanding that the more available credit, the better. I am not looking to make major purchases, nor am I attempting to prolong unsustainable spending habits. I simply want to know whether I am either walking into a trap or denying myself credit that I may need in the future.

With regards to hard credit checks, I have had two in the past 6 months: one that resulted in a small consumer loan, and the other was for a loan which turned out to have unsatisfactory terms, so I turned it down.

Question part 1: If I accept the pre-qualified offer now, is there any significant downside in the short or long term?

Question part 2: If I wait a while, assuming my balance/credit ratio is unchanged or even improves during that time, would it still be a good idea to apply for a pre-qualified credit card, given that enough time has passed since my last hard credit check?

  • rm -rf "more available credit, the better" – Pete B. Dec 14 '16 at 17:48
  • @PeteB. I do not understand your comment. Do you mean to say that my preconception about available credit is misguided? If so, why? – rm -rf slash Dec 14 '16 at 17:53
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    My assumption was you understood the 'rm' command. Yes that advice is misguided. Perhaps there are some very foolish people that advocate the unbridled acquisition of consumer credit, but not anyone serious. By asking that question, you may want to start reading, a lot, prior to making any real financial decision. – Pete B. Dec 14 '16 at 17:58
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I'm lumping your questions back into one because the answers go together:

If I accept the pre-qualified offer now, is there any significant downside in the short or long term? If I wait a while, assuming my balance/credit ratio is unchanged or even improves during that time, would it still be a good idea to apply for a pre-qualified credit card, given that enough time has passed since my last hard credit check?

There might a downside, but probably not in your situation. If you accept one credit card, the following things are likely to happen:

  1. Most likely there will be a hard pull which will have a minor negative impact on your credit score. The impact will decrease over time until it falls off in 1-2 years.
  2. Your AAoA will decrease which will slightly lower your score in the short term, but has the potential advantage of increasing your comparative AAoA when you obtain new credit long term. (Because future new credit will be a proportionally smaller change to the denominator.)
  3. Assuming you don't increase your spending due to having the new CC, then your ratio will decrease because you will now have more available credit. This will increase your score. (Unless your current ratio is already close to 0%, but you mentioned you have a small consumer loan.)

Every situation is different, but in general, the net effect of the above 3 items for accepting one credit card (IMHO) is that your credit score will slightly increase because the decrease in ratio of your current debt will have a bigger impact on your score than the hard pull and AAoA change. (Except during the time of the hard pull and when the new card reports- which could take a month.)

Now, even if your score would slightly increase, that doesn't necessarily mean you should get the card, and it definitely doesn't mean you should repeat and keep getting more credit. At some point having multiple inquiries and the bigger drop in AAoA will start to have a bigger impact on your score. Furthermore, (outside of the psychological urge to spend when you have more credit), if you have too much available credit, a lender may be hesitant to extend more to you. This would depend on your income too, but the basic line of thinking is: "Based on your income, how much can you afford if you max out all of your available credit?" At some point you hit a limit and they either won't lend to you, or they will ask you to replace existing credit with their own (i.e. cancel some unused credit).

So how should you interpret all of this? In general, I like to have a main CC and one backup CC, so if you only have one card I'd consider getting one more in case you lose your main one or if the number is compromised and you have to disable it until you receive your new card in the mail. Outside of that, I'd ignore the rest of the offers because they aren't going to help that much and they could possibly hurt.

If you decide to get one more card, make sure you pick one that has no annual fee, and if you are shopping, you might as well pick one with good perks. Who knows- maybe you'll find one that is even better than the one you currently have and your current card will become the backup.

  • Thank you for this answer. I found it extremely in-depth and explained the situation from the perspective of today as well as the mid to long term. This was precisely the amount and kinds of detail in this response that I was hoping to get. – rm -rf slash Dec 16 '16 at 0:07
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    This is sound advice. I'm a big fan of "less is more" when it comes to number of credit cards. It's hard enough keeping track of purchases on two cards (in terms of checking for fraudulent purchases), let alone more. – grfrazee Dec 16 '16 at 19:46
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  1. Even though you are prequalified, you do not necessarily get what was offered - the full qualification follows after you apply. Make sure you read the fine print on what you really got after you applied, it might mean a card with quite different interest rates (some would call that 'bait and switch').
  2. The full qualification is a hard check on your credit score; too many of those will reduce your credit score. If you take three such cards now for little gain, you might pay dearly for it when you apply for a mortgage in a year (and get a 0.5% higher rate).

Number 2 is a real long-term risk, if small; number 1 is more a 'watch what they give you'.

In a nutshell, 'pre-qualified' means only 'you look like an interesting customer we might like to work with', nothing more.

Generally, don't apply for credit you don't need.

  • One other note (not worth a separate answer): part of credit score is age of accounts, so opening new credit cards will at least temporarily drop your credit score because they are new - general guidelines are for 1-2 years, depending in other factors of credit. As they age they can become positive, but that takes a while. – BrianH Dec 14 '16 at 21:33
  • @Aganju fantastic answer. If TTT hadn't answered with a ton of detail, I would have selected this one, primarily because of your attention to the bait-and-switch that I was not entirely aware of. Thank you. – rm -rf slash Dec 16 '16 at 0:08
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Remember that "pre-qualified" does not mean "qualified". It means they've looked at you just long enough to consider you worth sending advertising to. Nothing more. It does not guarantee you will actually be able to get the card at the advertised rates. It does not guarantee you will be able to get the card at all. Do not let the fact that you are "pre-qualified" rush you into doing something you wouldn't do otherwise; it is NOT a special offer.

(In this usage, "pre-qualified" means something closer to "before being qualified" than "previously qualified".)

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I already have a credit card with a respectable credit limit and I am not in the position where I will need additional credit to meet my financial obligations,

That's a good reason to turn down a pre-approved offer.

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