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“Guaranteed approval” credit cards explained
When a credit card provider promises guaranteed approval or says you're pre-approved, it usually means you have a very strong chance of getting the card if you do decide to apply.
If you’re nervous about your credit score, then the idea of “guaranteed approval” is bound to appeal. Across the pond in the US, the term “guaranteed card” typically means a secured credit card, where you put down a deposit equivalent to (or greater than) your credit limit in order to guarantee approval. But secured cards aren’t really a “thing” over here, so what does guaranteed approval look like in the UK?
What does “guaranteed approval” mean?
When you’re told that you’re guaranteed or pre-approved, it’s based on what the card issuer knows about your circumstances. This could be from an existing relationship you have with it – perhaps it’s the bank you have your current account with – or perhaps you’ve used an eligibility checking service, which runs a “soft search” of your credit file (that’s a search that doesn’t affect your credit score and isn’t visible to others).
If you’ve used an eligibility checking service, then the personalised results returned are a great indication as to whether or not it’s worth applying for specific cards. The chances of approval given to you might not be 100% accurate every time, but they do offer a very sensible and informed assessment.
Receiving an actual physical “guaranteed credit card” or “pre-approved” offer in the post (and completely unsolicited) used to be shockingly normal. But now, it’s really only your own bank that might contact you to invite you to apply for an offer that it’s confident you’d be approved for. It’s likely to have selected your details from its database, perhaps from a previous application or an old credit card you had. Alternatively, it may have bought your customer details from a third party. Under GDPR (General Data Protection Regulation), companies that store your data must obtain your consent before selling your details to a third party (you may have “opted-in” at an earlier date).
Ultimately, these credit card providers are using the words “guaranteed approval” or “pre-approved” to attract new customers. After all, nobody likes getting rejected. These terms can give you a strong indication as to your likelihood of getting that final green light, but there are always final checks required – and a minority of applications will fall at this final hurdle.
The providers will be basing their “guaranteed credit card” offers on the limited information they have about you, so they may not have your current, full financial picture. This information might also be out-of-date and your credit score could have worsened since then. This means that while you may have been eligible for a credit card in the past, you might not be now.
If you do have bad credit, then all’s not lost because there’s a growing number of cards specifically designed for lower credit scores, but you should run an up-to-date eligibility check before you hit “apply”.
How can you really be approved for a credit card?
You can only be approved for a credit card if you go through the application process and meet the provider’s criteria. This cannot be done on your behalf without your consent.
Before you apply for a credit card, it’s good practice to perform an eligibility check. This is classed as a “soft search” on your credit report, which doesn’t affect your score and gives you a pretty good idea of how likely you are to be accepted, (and perhaps even your likely credit limit and interest rate too). When you make a full application for credit (e.g. credit card, mortgage or personal loan), the lender then performs what is called a “hard search“, which does show up on your credit file.
Lenders can’t perform a search on your credit history without your consent. If you see searches on your credit record that you don’t recognise, you can query these with the credit reference agency.
What criteria do I need to be approved for a credit card?
Card issuers generally state the minimum criteria you’ll need to meet in order to be able to apply – UK resident, over 18, and so on. Card issuers that specialise in bad credit will have a fairly short list, while the most premium cards might have high minimum income requirements or require you to be an existing customer.
Minimum credit card requirements usually include:
- You’re aged 18 or over
- You have a permanent UK address
- You have a current UK bank account
- You haven’t got any bankruptcy proceedings against you
- You haven’t received any recent county court judgements (CCJ) against you
How do providers decide who to approve for a credit card?
As part of the application process, lenders will look at your overall credit history and credit record. They’ll want to know whether you pay bills on time, whether you’ve repaid existing debts in the past, how much income you earn and how much debt you already have. Lenders are also likely to examine your spending habits.
Ultimately, a lender will want to be sure you can afford to pay back what you borrow before it will agree to giving you a credit card. Any card issuer will need to see that you have a clear source of income and that it’s sufficient to cover the potential debt that a credit card would let you get into.
Lenders will also use this information to help them determine what credit limit to give you and how much interest to charge if your application is approved.
I’ve got bad credit, but have been “pre-approved”
If you know you’ve got a poor credit history, you may have been pleasantly surprised to receive a credit card offer in the post or online telling you you’ve been “pre-approved”.
Bad credit is a once-overlooked segment of the market that is now served by a number of banks and specialist lenders. But it’s still wise to be cautious and explore all your options first. Firstly, the card issuer is making you an offer based on limited information they have about your credit report. If you make an application, which will allow them to access your full report, it’s possible it could change its mind about offering you a card. Alternatively, it may offer you a different card product than the original one marketed to you.
The credit card it offers you may not be the best deal for your financial circumstances. Customers with poor credit scores can be offered credit cards with low limits and incredibly high interest. It’s always better to research what else is out there before deciding on a credit card which best suits your needs.
I’ve been rejected for a credit card. How can I improve my credit score?
If you have no credit history or a poor credit score, you could struggle to be approved for mainstream credit cards. From the perspective of the credit card company, a low credit score suggests you may be a higher risk of failing to make your repayments.
One way to improve your credit score over time is by opening a credit builder card. These cards typically have low credit limits, high interest rates and little rewards, but allow you to boost your credit report by making regular monthly payments. As your credit score improves over time, you may be able to progress to more mainstream credit cards with more attractive interest rates and rewards.
Alternative options to a credit card
- An arranged overdraft. An arranged overdraft enables you to borrow money for the short-term. If you don’t already have one on your current account, they are usually quick and easy to set up. However, most overdrafts charge high rates of interest, so this is unlikely to be the cheapest solution.
- A prepaid card. Unlike a credit card, you don’t borrow funds with a prepaid card. Instead, you preload funds onto the card and can then use your card to pay for things in the same way as a credit or debit card. Just watch out for transaction fees.
- A personal loan. With a loan, you borrow a lump sum of cash over a set term. You then make fixed monthly repayments, with interest, to repay the amount borrowed. Personal loans can enable you to borrow more than you can with a credit card and interest rates can be lower too. However, like a credit card, you might not be accepted.
Dos and don’ts
Credit card providers have different reasons for accepting or rejecting your application.
Here are some important dos and don’ts to help you increase your chances of acceptance and how to manage your credit card once you have it.
- Use the eligibility check first before applying (even if you’ve received a pre-approved or guaranteed offer of a credit card).
- Register on the electoral roll at your address if you haven’t already. This usually increases your credit score.
- Pay off your full balance every month to avoid high interest charges.
- Look out for annual or monthly fees or any other charges.
- Use a credit card for a large purchase. If something goes wrong with the item or the retailer goes bust, you are protected by Section 75 and are usually entitled to a refund. If you paid on a debit card, you would have little to no protection.
- Blindly accept whatever credit card you’re offered. Research the best credit card for your needs.
- Make multiple credit card applications at once.
- Forget to pay on time – you’ll accrue penalty fees as well as high interest and could also lose any introductory offers you might have, such as 0% interest.
- Spend beyond your means.
- Don’t withdraw cash on a credit card. This is treated as a cash advance and usually accrues interest immediately.
The term ‘guaranteed approval credit card’ doesn’t mean you’re 100% guaranteed to be accepted for a credit card. But it does mean the card issuer will definitely consider your application and is more likely to accept you. The only way to be fully approved for a credit card is to go through the application process.
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