The Pros And Cons of Accepting Pre-Approved Credit

It feels pretty flattering when your bank notifies you and lets you know that you’ve been pre-approved for some form of credit. It’s a sign that lenders are viewing you as a low-risk client. Stay on the path you’re on, and you’ll continue to unlock better interest rates and more borrowing opportunities. In the meantime though, what are the pros and cons of accepting pre-approved credit?

If you’re someone who’s been struggling to improve your credit score, and this pre-approval is your first indication of success, it can be very enticing to jump at the first opportunity to borrow. Before you make any decisions, let’s take a look at the pros and cons of accepting pre-approved credit.

What To Consider:

Pro: You can use this new credit, whether it’s a line of credit, a loan or a credit card, to build your credit score even more.

Con: Having more credit at your disposal could lead to accidental spending abuse, and lead you to become buried under a mountain of debt again.

Pro: Having more credit available can provide greater freedom. For instance, a credit card offers you the ability to book travel easier.

Con: You could get stuck with a high-interest rate.

Pro: The potential to earn rewards - many credit cards offer some form of rewards that you can earn through spending.

Con: If you accept a loan you will be locked into long-term monthly payments, which can affect your budget and spending lifestyle.

Pro: Accepting more credit will lower your usage percentage. For example, if you’re using 50% of your $10,000 available credit, and then the bank offers you another $5,000, your usage percentage drops to 33% of $15,000.

Con: Adding another minimum payment each month is going to lower your monthly cash flow.

Pro: Accepting new credit and adding another trade line to your credit report can help build your credit score.

As you can see, there are upsides and downsides when it comes to accepting an offer of pre-approved credit. Before making any final decisions, ask your self the following three questions:

1. What is the interest rate?
2. Are your spending habits under control?
3. Can you afford to add another monthly payment to your budget

Have you ever been pre-approved for new credit? Did you decide to take it? Let us know in the comments!