Credit Card Offers and Risks Should be Examined Closely

While it can be very flattering to receive multiple offers in the mail and online for new credit cards that seem very attractive it can also be a little risky to accept such offers.

The entire world of purchasing on credit is not a very old one. Credit cards did not even appear in the financial world until the 1950’s. Prior to that credit was generally given when some kind of property could be used as collateral on a loan. The reason this was done was to protect the business that financed customers as much as possible. If a customer ended up in a position where they were unable to make their payments the collateral could be signed over to the lender to satisfy the debt.

These collateral based loans are still in use very widely. We know them mostly as mortgages. A mortgage uses the value of your property as security on your loan. In the case where you default on the mortgage the lender can repossess your property to satisfy the loan. 

Risks For Banks and Other Lenders

The risks that your banks assume when they decide to give you a loan are considerable. You could stop making your payments and force them to take legal action in order to repossess your property. This costs them time, effort and money. When they do repossess your property (home, car, furniture, boat) that was collateral on your loan they then must also deal with the costs involved in selling the property off to pay whatever is left outstanding on your loan. Your banks or lenders risk the price they get from this sale being lower than the amount still on your loan. They may then need to take further legal action to collect whatever is unpaid from you. Legal action costs money. They may choose to write off the leftover amount as bad debt. This costs them money as well. In this situation you have cost the banks a lot of money. If you ever request a loan again from another bank you will discover that your credit score is not good and that they may not even want to deal with you. If you do actually receive a loan or a credit card offer with your now bad credit rating, you will find that you are not offered a good rate of interest or low fees. The best credit card offer you get may carry a very high interest rate and a large annual fee. This is because the top credit card offers only go to people with excellent credit. These are the people who the bank feels are a good risk.

Risks For Credit Card Holders

While it may be easy to see the risks that banks or credit card companies assume when they offer you a loan or a line of credit (especially one not secured by any collateral), there are also risks for you the consumer.

Any credit card offers or loan offers you are given come with some personal risk. If you already have several credit cards that carry large balances, you may be risking your financial stability to accept another credit card just because it is offered. If you cannot control your spending habits, you are sure to max the new card out as well and it is only a matter of time until your debt load is simply too high for you to ever get out from under.

Especially if you have a good credit score, you can find yourself almost bombarded with credit card offers that tell you to apply online for your low rate card with fee free balance transfers and lots of rewards. Yes, this does look attractive.  You must be very careful not to overextend yourself though.

Another risk in accepting the best credit cards online is that every time you do open another account your credit rating could go down. This is because the credit reporting agencies may see that your income remains the same while you keep acquiring credit cards. Your potential debt load is the total of the maximum limits of all the credit cards and loans you have. This potential debt load compared to your income gives a lender and a credit agency a good idea that you are headed for some trouble.

At this point you may not be as attractive to the people with credit card offers. They may still offer you new credit but it may be at higher rates with higher annual fees to help them manage the risk of lending money to you now that you are carrying so much debt.

Use Credit Cards With Caution

All your credit cards and loans should be a part of your overall financial picture. A healthy budget means not overspending with plastic but using it as a tool to help you in your overall financial goals. While it may make you feel really good to keep getting more credit card offers, you should examine them carefully and accept them cautiously.

If you do decide that a new credit card offer is a good deal, has a low rate and is fee free may very well want to take advantage of such balance transfer credit card offers to reduce the amount of financing you are paying on current cards. If you transfer a balance to a new card you should decide if you still need the old card. If not you need to destroy it and contact the credit card company to close the account. Leaving the account open could mean that your credit report will still show its maximum as potential debt that you could carry.

Remember that the top credit card offers go to those who look the least risky to lenders and banks. Especially if you do not currently have good credit, you will want to reduce the chances that you will look risky. You can do that by:

• Not having too many credit cards
• Making your payments on time every month
• Reducing your debt load to income ratio
• Maintaining a good credit score

While there is always some level of risk in credit card offers for both the banks and for you, if you use credit responsibly as a part of your entire financial plan, you will keep your risks to a minimum. This should keep you and the banks happy.