You've just been offered a pre-approved credit card. Should you take it?

Written by:

Srivindhya Kolluru

Toronto Star

January 7, 2024

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Taking up a pre-approved credit card offer can improve your credit score and earn you better rewards on the things you buy. If you are among the growing number of Canadians who rely on credit cards for essentials, however, think twice about these offers if you're already struggling to pay off debt, experts advise. 

One of the main advantages of taking up a credit card offer — one that doesn’t require an application or result in a “hard inquiry” into your credit — is that it can improve your credit utilization ratio, says Cindy Marques, a certified financial planner and director at Open Access Ltd.

Expressed as a percentage, your credit utilization ratio is the amount of credit you’re using divided by the total amount of credit available to you. Generally, a credit utilization score below 30 per cent can help you maintain or improve your credit score. 

Marques explains that taking up a credit card offer will increase your credit limit and reduce your utilization ratio. She says taking up one of these offers could also improve your credit mix. “If you only have a line of credit or a student loan, adding a new type of debt product to the mix will improve your score by being able to manage different types of debt products.”

Some credit card welcome offers come with promotions on a balance transfer, which involves shifting your balance from one credit card to another. An example of this type of promotion is offering zero per cent interest for six or 12 months on your credit card.

“If you were sitting at 20 per cent before and all you have to pay is three per cent to transfer that balance," says Marques, "you’re still saving yourself that difference of 17 per cent of interest over the year. “Balance offers can be a really great way to give yourself a moment of reprieve from those interest payments … but of course, you have to be mindful that there’s a transfer fee involved.” These fees can range from one to five per cent, according to Ratehub.