If you’re like many Americans, you’ve probably received a couple of credit card offers through the mail. Some of these can come as a result of a credit check. But when a company tells you that you’re preapproved, it doesn’t really mean that you’re guaranteed to be approved for a credit card, like you may think. It does mean that the company checked your basic information to see if you might qualify. As soft inquiries, these credit checks are the type of inquiry that don’t show up when others see your credit report.
Why Companies Preapprove
Credit card companies reason that the vast majority of the people who receive their preapproval letter won’t be interested in applying for a card. However, by preapproving people, the card company gets two benefits. First, it reduces the risk that it’s spending money to send offers to someone who wouldn’t qualify. Second, it knows that you’re more likely to respond to a more appealing preapproved offer.
What Preapproval Means
Before sending out a preapproved letter, the credit card company first determines its criteria for who would be a good customer. Then, it works with a credit reporting agency to anonymously find consumers who meet its criteria, such as by applying a minimum credit score across the consumers in the credit reporting agency’s database. If you meet the criteria, you’re a good candidate to receive an offer. Once you apply, the company will frequently do a formal credit check to see if you are as qualified as it initially thought. If you are, you’ll get the card. If you aren’t, your application will be declined. According to MarketWatch, up to 30 percent of the applications from preapproved offers get turned down.
Preapproval and Your Credit
Credit reporting agencies differentiate between the soft inquiries that come from preapprovals that you didn’t request and the hard inquiries that come up when you apply seek out new lines of credit and have your score pulled. Soft inquiries only show when you check your credit yourself, while hard inquiries get shown to others that check your credit, and can accumulate to impact your score. Once you apply for a preapproved offer, the lender can make a hard inquiry which may affect your score.
Receiving preapproved offers shouldn’t do your credit any harm, but if you’d rather not get them, you have the option to opt out. To do this, you can call a toll-free number or visit a website and have a hold put on your credit so that you won’t receive any offers for five years. To opt out forever, you will need to send in a written form. You can always opt back in once you’ve opted out.
About the Author
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Lander holds a Bachelor of Arts in political science from Columbia University.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc., an Experian company. © 2014 ConsumerInfo.com, Inc. All rights reserved.