If you’ve ever received a credit card pre-approval offer in the mail, you may have wondered why the credit card issuer is reaching out to you. How do they know you would be a good customer? Why are they extending you an offer unprompted? And are these offers guaranteed?
The business of credit card pre-approvals is simply a marketing tactic to get customers to apply. So if you received an offer with low interest rates or exciting rewards, know that the credit card company isn’t making any promises with that pre-approval.
How Pre-Approvals Work
Credit card issuers don’t mail out pre-approval letters to every house on the block, hoping to land new customers. Instead, they target consumers that look attractive based on limited information provided by the credit bureaus. Here’s how it works:
The credit card issuer requests a list of consumers from one of the three credit bureaus – Experian, TransUnion, or Equifax. They are looking for consumers that meet certain criteria, such as individuals who hold a certain number of accounts or who have a credit score that falls within a certain range. If you meet the requested criteria, your name goes on the list provided to the credit card issuer, and they will send you a pre-approval letter in the hopes that you will submit an application.
It’s important to note that the credit card issuer doesn’t access your actual credit report during this process, and your credit score is not affected. The credit card issuer won’t pull your credit until you submit a credit card application. If you do submit an application, the resulting hard inquiry could ding your credit score a few points but shouldn’t cause any lasting damage.
Pre-Approvals Are Not Guaranteed
If you received an attractive pre-approval offer, you may think it’s a no-brainer to accept the offer and get your shiny new card.
Not so fast. The credit card pre-approval is not a guarantee – it’s more of an invitation to apply. You still have to submit an application and wait to get approved while the credit card issuer checks your credit report and credit score.
When your credit is pulled, the credit card issuer may find that your credit isn’t good enough after all. They can still reject your application or approve you for different terms than they offered in the pre-approval letter. Remember, that pre-approval offer is not a binding contract.
Essentially, a credit card pre-approval is simply a marketing trick for credit card issuers to generate interest among potential customers that meet certain criteria. If you submit an application, the credit card company can still decline your application or offer you different terms.
If you want to review pre-approval letters for great offers, you should do so, but remember there’s no guarantee. You can also use credit card pre-approvals as a bargaining tactic to negotiate better terms for your existing credit card.
Remember to shred pre-approval letters instead of tossing them into the trash intact. While it’s unlikely that an identity thief can use your pre-approval letter to open a credit card in your name, it’s not impossible. Better to eliminate the risk entirely by destroying the pre-approval letter.