Instant Decision Doesn’t Always Mean Cash Now
Instant approval isn’t always good
For anyone looking for cash now, credit cards aren’t always the best ways to find it. Almost everyone has been online only to have that “Instant Decision” flash across the screen. The credit card company advertises a special in which they will extend credit to anyone who needs it. They claim that it is a great way to have emergency access to money if needed. But is it really the great deal that companies claim it is?
Point reductions hurt credit
Part of the problem with instant decision is that once a consumer is in the system, the company begins reporting immediately. The company lists an inquiry on the credit report and that can pull a consumer’s score down. Closing the account won’t get rid of the inquiry so anytime a consumer enters their information into the website, they can expect credit companies to know it. The score reduction for the inquiry will be permanent and can last for up to a year, even though the inquiry will stay on the report for up to two years. Any inquiry can lower a credit score by five points, according to FICO. Consumers should be careful with filling out applications because they can cost valuable credit score points.
How to be safe
When it comes to safeguarding credit, every consumer should use the Fair Credit Reporting Act’s rules. According to the act, consumers are entitled to free copies of credit reports from each of the three major credit reporting agencies once a year. AnnualCreditReport.com is a safe place to get credit reports. Consumers should be aware that there are many websites that will offer credit reports, but they aren’t always free. Anyone who sees these websites should be sure to read the fine print. Most will advertise “free” credit reports, but then tack on a 14-day trial period. The company doesn’t ask for cash now, but once that is over, the company charges anywhere from $29.99 to $49.99 a month to monitor consumer’s credit. If a consumer doesn’t call to cancel the charges, their credit card is debited for the charges indefinitely. The thing to remember about these companies is that they aren’t offering consumers anything they could have for free by monitoring their own credit. Every consumer is able to watch their own credit if they are diligent about ordering and scouring it.
The price of instant decision
Another reason the instant decision credit account isn’t necessarily a good idea is because the inquiry on an account can remain part of a credit history for up to 10 years. Normally, closing accounts reduces the total amount of available credit, but when the amount of credit remains the same that drives down the overall credit score. For example, if a consumer has two cards with a total of $10,000 credit and has $2,000-worth of charges, then they are using 20% of their credit. If they close one card with a limit of $5,000, they still have $2,000 in charges and that brings their new usage of credit to 2/5 or 40%. Although they didn’t charge anything more, they affected their credit score with the closing of the account. Having 40% of the total credit used as opposed to 20% can produce very different results when it comes to a credit score.
It’s always important to manage credit wisely and to remember that even a small inquiry can bring a credit score down. Although the “instant decision” sign may look like an advantage, sometimes it isn’t. The lure of having cash now can be persuasive. Consumers should remember though that opening more credit isn’t always the answer to having a better financial situation. Used wisely, credit can be a helpful tool, but used without thought, it can drive scores down and hurt the consumer’s credit.