Pre-Approved Credit Card Offer? Here's How to Protect Yourself

Who hasn't opened up their mailbox to find a pre-approved credit card offer or two? A cynic might say that whole forests have been toppled for the sole reason of getting your signature on a shiny new credit card.

And why not? Americans love abusing their credit cards. The average U.S. household credit debt rose from $2,985 in 1990 to more than $8,100 in 2004 as the number of credit cards in use increased from 250 million to 538.1 million, according to credit-card site CardWeb.com.

The best way to keep credit card debt down is not using a credit card. But if you do receive a pre-approved card that intrigues you, at least know what you're getting into before signing on the bottom line:

What Interest Am I Paying? Make sure you understand interest rate you will be paying and for how long. Usually, fixed-rate annual percentage rates (APRs) are the best deal, as card companies have to notify you before raising rates (variable rate cards rise and fall with prime interest rates).

Know That Rates Can Vary: You may not know it but most credit cards carry more than one interest rate, with balance transfers and cash advances usually carrying a higher rate. Consequently, you may have a 12.9 percent APR on purchases, and a 19.6 percent APR on cash advances. Not surprisingly, card companies apply any monthly payments to the part of the balance that is subject to the lowest interest rate, before the higher-rate part is paid.

Don't Pay Late: Tardy credit card bill payers can expect the back of the card industry's hand in the form of higher interest rates. Some cards will immediately raise your interest rate from the introductory teaser rate to the regular rate if you're late just one time.

Pay No Fees: If there's a fee involved with your new credit card offer, walk away. Why pay a fee for a credit card when, with good credit, you don't have to?

Cyber-Shopper? Get Protection: If you like to shop on the Internet, find a credit card with a safe online shopping guarantee. Look for a card with specific guarantees, like 100% coverage for any losses due to fraud when shopping on the Internet.

Don't Assume You'll Get Approved: Pre-approved credit card offers are no guarantee of credit. If you return the card offer, many financial institutions will conduct a "post-screening" process, which typically involves reviewing your credit bureau report in full as well as verifying information provided on your application. If your financial situation has changed, or if the card-issuing institution determines through post-screening that you don't qualify for the credit line initially, you may still be offered a card, but with different terms or a smaller credit line. Or, your application may be turned down.

How Can I Get These Guys Off My Back? If you don't want to receive pre-approved card offers, call 1-888-5OPT-OUT to get your credit file blocked against pre-screening at the three major credit bureaus.

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