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help with my paper: what are the advantages of pre approved credit cards?

olivedrabcj7

NAXJA Member #1384
Im doing a group presentation on thursday on the topic of "Pre-Approved Credit cards". I have been selected to cover the Pros. I think im getting screwed because as a consumer i cant think of any. I know theyre annoying. There must be some advantages for the banks/CC companies as well as advantages for the would be debtor. I need some help.....thanks in advance.
 
Only advantage for me (the consumer) is that I can see the rate before I bother wasting my time with a reply. However this can be a teaser rate for perfect credit, so some people may still have to waste some time to find out what they really pay.

Advantage for the card company is obvious...they send out thousands of "pre-approvals" at a cost of a few cents each, and they get plenty of responses from people who want a card, but are to lazy to go "looking" for one.

I'm sure theres more to it, but I'm a black and white kind of guy.

Good luck finding pros :D
 
I am continually astonished at the level of credit card debt many people carry, considering the usurious interest rates most cards charge. According to a few googled sources, the average household in the US now carries nearly ten thousand dollars of CC debt, and the average family pays about $1200 a year just in credit card interest, with an average rate of 18.9 percent! Many of the cards that tout low rates seem to be designed to get people mired in debt, and then raise the rates after a few months.

My guess is that especially after the bankruptcy laws have been modified in favor of credit card issuers, it pays them to issue pre-approved cards, in the hope that people will run up enormous, high interest debt which cannot be erased.

One advantage for the would-be debtor is that if one already has a balance on a high interest card, it might be worthwile to pay it off with a lower interest card to lower the load. But this works only if the lower interest lasts long enough to allow the debt to be paid down at the lower rate. Unfortunately, I suspect few people succeed in this, instead running up additional new debt on the new cards, missing the opportunity to pay down the debt at the introductory rates. When you're in a hole, you need a rope, not another shovel.

And of course a credit card, pre-approved or not, is an advantage to any consumer who never carries a balance. Especially now, with internet purchasing, it's a necessity, and if you do pay off 100% every month, you benefit from the float, collecting at least a tiny bit of interest on your money during the month, while paying none out. I've had a visa card since 1972, and have probably paid out a total of about 50 bucks in interest in that time, owing to accidentally missed payments during moves, long trips, etc. It's a very handy thing to have if you remember not to spend money you don't already have.

But non-debtor consumers are in the minority I think. You can be sure that if credit card companies issue preapproved cards, they are benefiting from it, and since debt is the driving force for the multi-billion dollar CC industry, that's where you'll find the motivation.

Edit to add: here's an interesting web site with some statistics and observations. Note that along with everything else, credit cards tend to increase the average size of a transaction. People tend not to count their money when they're not physically counting their money.

http://www.bankrate.com/brm/news/debt/debtguide2004/debt-trivia1.asp
 
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Matthew Currie said:
And of course a credit card, pre-approved or not, is an advantage to any consumer who never carries a balance. Especially now, with internet purchasing, it's a necessity, and if you do pay off 100% every month, you benefit from the float, collecting at least a tiny bit of interest on your money during the month, while paying none out. I've had a visa card since 1972, and have probably paid out a total of about 50 bucks in interest in that time, owing to accidentally missed payments during moves, long trips, etc. It's a very handy thing to have if you remember not to spend money you don't already have.
I couldn't help but smile reading this...I was begginnning to think I was the only one.

While I am only 28 and have only had a card for about 5 years (never needed one before that) I too have never given them interest.

Take notes here kids...this is important stuff.

DON'T SPEND MONEY YOU DON'T HAVE!!!!!!
 
man this is awesome. I agree totally.
 
olivedrabcj7 said:
Im doing a group presentation on thursday on the topic of "Pre-Approved Credit cards". I have been selected to cover the Pros. I think im getting screwed because as a consumer i cant think of any. I know theyre annoying. There must be some advantages for the banks/CC companies as well as advantages for the would be debtor. I need some help.....thanks in advance.

I think you will find that this is a marketing ploy to get people to sign up.

What comes in the mail is simply a credit card application with the words "Pre Approved" on it. You still have the disclosure statement, and still have to send in a filled out and signed application for them to a approve/decline.

There are no advantaged to the debtor, except if they are so inclined as to want a CC, the barage of advertiser mail allows them to get the big picture right off the bat.

The big picture is that you don't want a CC unless you want to pay a large amount of interest on the balance. While it is true that there are some cards with no annual fee, and you won't owe any interest if you pay the balance shortly after you create the debt, most folks do not have this kind of discipline.

The answer to your question lies with the credit companies. What do they get out of it?
Credit card companies double dip. They charge both the merchant and the purchaser a fee. The Merchant gets charged a fee which is somewhere about 3-6% of the transaction. The Purchaser pays interest on the outstanding balance.

I found this link which appears informative:
http://en.wikipedia.org/wiki/Credit_card
 
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Zuki-Ron said:
I think you will find that this is a marketing ploy to get people to sign up.

What comes in the mail is simply a credit card application with the words "Pre Approved" on it. You still have the disclosure statement, and still have to send in a filled out and signed application for them to a approve/decline.

There are no advantaged to the debtor, except if they are so inclined as to want a CC, the barage of advertiser mail allows them to get the big picture right off the bat.

The big picture is that you don't want a CC unless you want to pay a large amount of interest on the balance. While it is true that there are some cards with no annual fee, and you won't owe any interest if you pay the balance shortly after you create the debt, most folks do not have this kind of discipline.

The answer to your question lies with the credit companies. What do they get out of it?
Credit card companies double dip. They charge both the merchant and the purchaser a fee. The Merchant gets charged a fee which is somewhere about 3-6% of the transaction. The Purchaser pays interest on the outstanding balance.

I found this link which appears informative:
http://en.wikipedia.org/wiki/Credit_card

I was under the impression that merchants pay between 1 and 2 percent on CC transactions. That's still too much, and higher in the US than most other places. Most CC issuers have very complex multi-tiered fee structures, based in part on how much business is done. I think there's a class action suit still ongoing about this, but I don't know if or when it will be settled.
 
Matthew Currie said:
I was under the impression that merchants pay between 1 and 2 percent on CC transactions. That's still too much, and higher in the US than most other places. Most CC issuers have very complex multi-tiered fee structures, based in part on how much business is done. I think there's a class action suit still ongoing about this, but I don't know if or when it will be settled.

As you stated, it depends on the volume of transactions. A number of small businesses pay somewhere near the 6% figure, then add the cost of doing business into the retail of the product. Then you have machine costs and setup fees. It is not cheap for a small business to accept credit cards, but it something they are willing to do so as not to turn folks away. Credit cards, though easy for the consumer, have jacked the retail price of goods up. Gas stations used to have a "Cash" price, and a "Credit card" price. The difference in price was about the cost of running the transaction.

Here is an interesting article from computerworld about internet transactions.
http://www.computerworld.com/printthis/2001/0,4814,62817,00.html
 
One pro is that is basically is a card that is sent to your door and usually grabs the people who are lazy and dont care to look for one. (Me) I didnt have a problem using my debit card for anything over the internet or gas, btu now I just use my credit card assuming I can pay it off five seconds later. No interest, and I've been doing wonders for my credit since I was 18. So it provides an easy in for lazy people and 18 year olds.
 
You bring up and interesting point. You can't build credit without taking out a loan, which is what a credit card is. Without good credit history, you can't get a good rate on a major purchase, like a house or car.

I know my first loan cost me more than it should have for exactly that reason, I was in my 20's and had no credit history.
 
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I just got a credit card about 8 months ago after not having one.. ever.. and I'm 22. As of 2 months ago I started recieving credit card offers in the mail saying i've been pre-approved for various different credit cards. I've recieved about 35 at least in the past couple months... have I looked at any of them? No... The pro's for me, take them on a camping trip to use as a form of starting the fire. I still use my college card from my bank with a $800 limit...I have no real need to have a $5,000 limit on my card. I guess a pro for some would be, they know they have good or decent enough credit to get a credit card, which today in this society we live in, credit is everything... can't really buy a house, car, rent without having some kind of credit. Even with poor credit it's hard to do any of that unless you want to pay an arm and a leg for your monthly payment. Pro for the company that sends out the pre-approved letters... they get people with bad credit who want a credit card so they do it not really paying attention to high interest rates. I don't understand people who have 3+ credit cards... There is no real need for that. That's just asking for debt to come knocking at your door.

Dunno if that helps.. but that's what I think :looney:
 
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