Guaranteed Approval is Not Really What it Says…
Credit lenders are expert marketers. They advertise credit cards as “guaranteed approval”, “pre-approval” and cards that require “no credit checks”. If that’s true, why is so hard for you to qualify for a credit card?
Pre-Approval Credit Cards
The pre-approval credit accounts are usually a mass mailing to names and addresses of people who have been targeted through pre-checks of credit bureau files.
Yes, it’s possible for a lending institution to request a check of your credit file without your permission. They do not receive your actual file or even your three digit credit score. However, if your credit is bad that info is reflected in a pre-check and is enough to eliminate you from the mailing.
If you have declared bankruptcy, getting a credit card is next to impossible. However, you may still be receiving offers saying you are pre-qualified because the bankruptcy information does not yet display in your credit report. The fine print on offers claiming you are pre-qualified tells you qualification depends on your credit rating.
Cards Advertised as “Guaranteed Approval”
If you have credit problems you may want to apply for a credit card advertised as “guaranteed approval”. This is an unusual lending arena where you may not learn the details and terms of the card until after you have given your personal information to the lender.
To find lenders, search the internet and carefully compare the options offered by several credit companies. Some smaller lending institutions have found guaranteed approval a good way for them to profit in the competitive credit market.
The credit cards issued are often what are known as “off brand” which means they do not carry a major logo such as MasterCard or Visa. This renders the cards usable only for certain merchants who have agreed to accept the lender’s branded cards.
If you choose to apply to a lender advertising guaranteed approval, you will find the terms rather steep. APR may be as high as 29.99% for these cards.
In addition, there are likely to be annual fees, setup fees and transaction fees required. This is not true of all guaranteed approval cards so you may need to give your personal information to several lenders in order to compare their offers.
An important factor to consider when applying for a guaranteed approval credit card is to ask whether the lending institution reports monthly to the three major credit bureaus.
Guaranteed approval cards can provide you with a credit card to use but unless the lender reports your payment records to credit rating agencies, you might as well pay cash for your purchases.
If you find a guaranteed approval card with acceptable terms and high interest rate you don’t have to pay high finance charges to improve your credit score.
If you make purchases with the card and pay those purchases in full during the grace period provided by the lender, you will not incur finance charges.
As long as the lender reports to the credit rating bureaus, the charge and payoff will be a positive on your credit score. It is no longer necessary to carry a balance in order to improve your credit rating. However, it is necessary to use the card to make purchases and show activity on the account.
If you are unwilling or unable to finance a secured credit card, the guaranteed approval cards can put a credit card in your wallet and help you rebuild your credit. However, this card will be costly and should be used only when there is no other option.
Secured Cards Advertised as “Guaranteed Approval”
When secured credit cards were first available, they were issued only by a few lending institutions and were clearly recognized as secured cards. The account number and often the design of the card identified the account holder as financially challenged.
Today guaranteed approval of secured accounts look the same as any other credit account. The approval is guaranteed because the lender has no risk.
These are not cheap credit cards to use but the credit spending limit may be anywhere from $200 to $5000. You set the spending limit because you must deposit that amount in a special account before your card is issued. The money you deposit guarantees payment of the credit card.
The costs are often passed on as fees when you open the new account. You may have to pay initiation and setup fees and other fees that will be charged to your balance and appear on your first monthly bill. APR will be high but not as high as for an unsecured guaranteed approval credit card.
Guaranteed approval cards can be found. However, you must carefully read the terms and understand the fees involved. If the lender reports to major credit bureaus this is a valid way to improve your credit scores and to provide you with a credit card to use.