Anyone with a credit score has probably seen their fair share of pre-approved credit card offers in their mail box.
You don’t have to have a great credit score to receive pre-approved credit card offers. People with poor credit also receive them. The difference, of course, is in the quality of the offer and maybe the issuer.
But, should anyone get excited about receiving a pre-approved credit card offer?
What does it actually mean to be pre-approved and how should you respond to an offer?
These are important questions to consider as you contemplate your next offer. Spoiler alert: Don’t be too quick to jump on it.
When Pre-Approved is Not Really Pre-Approved
If you have ever received a pre-approved offer, you may already know that it doesn’t mean you are guaranteed the offer. In fact, you may even have been declined for a pre-approved offer.
How is that possible if you are “pre-approved?” It is because you have not been pre-approved for a credit card; rather, you have been pre-approved to apply for the card. You still have to qualify for it based on the issuer’s credit requirements.
As you can probably imagine, the credit card issuers pay mega bucks for access to credit data to identify consumers who broadly fit a certain credit profile. They spend tens of millions of dollars accessing the data and then mailing out offers with the understanding that a very small percentage will respond. It’s purely a numbers game.
If you meet the criteria, you will be mailed a pre-approval offer, inviting you to apply. Only after you apply will the credit card issuer take a closer look at your credit history and income information to determine if you actually meet their requirements.
Once you apply, there are three possible scenarios that can unfold: First, you could be approved for the pre-approval credit card with the same rate and terms stated in the offer. Second, you could be approved, but at a higher interest rate or a shorter introductory balance transfer period than what was stated in the offer. Third, you simply be declined.
Although the terminology is all open to interpretation, a “pre-screened” offer is more likely to lead approval for a credit card. When an issuer pre-screens you, they check your credit profile more thoroughly, but even with that, there is no guarantee you will be approved for a credit card, or for the stated offer.
Do Pre-Approved Offers Hurt My Credit?
To determine your suitability to be mailed an offer, issuers work off a list of criteria they can gather from data provided by the credit bureaus. In many cases, it doesn’t even require a soft pull of your credit history; but, even if it did, it would not have any impact on your credit score.
However, if you take them up on their offer to apply for a credit card, the issuer will then do a hard pull of your credit history, which is then recorded as a hard inquiry. Hard inquiries can negatively impact your credit score if you have too many of them within a short period of time.
One hard inquiry every six months won’t have much of an effect if you have a lot of other, positive credit activity; but multiple inquiries within a short period of time will. The takeaway from this is to avoid applying for more than one pre-approval credit card offer within a six to 12 month period.
If you are declined for a card, you are entitled to a free credit report if you request it within 60 days. You will be able to examine it to see the reasons behind the denial and the work to improve your credit score if you want to apply for credit in the future.
What to Do With Your Next Pre-Approved Offer
If you do receive a pre-approval credit card offer, you should first decide whether you actually need the additional credit card. If it is an offer than can improve your credit situation by lowering your interest costs or by lowering your credit utilization ratio (increasing your available credit can reduce your ratio), then you need to determine your chances of qualifying for the card based on the offer.
The average person only gets approved 30% of the time for a new credit card. If you have excellent credit, your chances of approval are closer to 90%. You should know where you fall on the credit worthiness spectrum. If you think there is even a chance you will be denied or approved for less favorable terms, you should probably not apply.
You should make it a practice to only apply for credit cards, pre-approved or not, for which you are more likely to quality. To do that, you may want to avoid pre-approved offers altogether and do your own research to find a credit card the best fits your credit profile and meets your needs.
You Can Stop Pre-Approved Offers
Understanding more about how pre-approved credit card offers really work, you may be inclined to simply stop them from cluttering your mail box. You can opt out of most offers by going to optoutprescreen.com. If you ever decide you want to receive them again, you can always opt in at the same website.
Author: Jeff Gitlen
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