Open your mailbox and you’ll probably find yourself inundated with credit card offers from the big banks: Envelopes with the words “Pre-Approved” and “Pre-Qualified” emblazoned across the front in big block letters. It’s enough to make some folks think they’ve got a new credit card coming in their future, but that’s not particularly the case. In fact, terms like these are a way to get you interested in seeking out a credit card that’s been offered, but neither one actually means you’ll be issued that card. You still have to go through the application process and meet underwriting guidelines of the banking institution that sent you the offer.
There’s also a difference between the terms as “Pre-Approved” and “Pre-Qualified” don’t mean the same thing when it comes to your being given the credit card in question. Conversely, just because you haven’t been given a pre-approval or a pre-qualification on a credit card doesn’t mean you can’t receive that card, either. This is all fancy marketing language that is designed to entice consumers to entertain the idea of opening a new credit card, but there are some crucial issues to keep in mind that could affect your credit score should you decide to pursue. This solicitation also works both ways as you don’t have to wait for a bank to send you a pre-qualified offer, you can visit any of the major banking websites to see if you’ve been pre-qualified and for which card.
This all may sound a bit confusing, so let’s straighten it out for you as we discuss all of the facts and fiction around pre-approvals, pre-qualifications, and getting the credit card you want.
Pre-Approved vs. Pre-Qualified
You may think they’re the same thing. They certainly sound like the same thing. But, of course, they’re not and neither one automatically guarantees your acceptance for that new credit card. You still have to initiate the application process and qualify as per the set underwriting criteria that a bank has in place for all new applicants.
However, you’ve been pre-approved, so the process should go much smoother as this is just a formality, right?
That’s where the big misconception comes in for consumers who eagerly fill out their form, send it in, and then find out they’ve been rejected or denied the card that they thought was coming in the mail. Part of the confusion comes with the difference between meeting the terms to qualify you as pre-approved or pre-qualified and leads to all of that junk mail that shows up at the house and going through the full application process – credit check and all – to determine if you meet the minimum requirements to become a cardholder.
So let’s break it all down: Pre-Approval means you’ve been approved, theoretically, to get the card, subject to an actual credit check, while Pre-Qualified means that the banks have found your name on a list they received from a credit bureau and that list has indicated to the lending institutions that your credit report meets a certain level of criteria that they are seeking. In both cases, these sound encouraging for approval, and for many consumers it could very well be the first step to getting that new card.
However, no matter which determination you’ve fallen under, you still have to go through the full process of the issuer running your credit and deciding whether or not you are ultimately approved. That doesn’t sound like it makes sense, since you would expect that a pre-approval or a pre-qualification has been made only after the bank has made some type of inquiry into your creditworthiness, but this is not the case.
Even with a pre-qualification, the card issuer has only been given your name as it relates to certain credit criteria that the bank has asked to receive. That request doesn’t go any further than the banks asking the credit bureaus for a list of names and addresses inside a certain zip code with a FICO score that falls within a certain range of numbers. If you’re one of those names that they receive, then yes, you qualify based on the categories they’re seeking out but the final determination will come once they do a full assessment of your credit report.
Your credit score doesn’t tell the entire story, but it’s a good starting point. You also don’t know how old this list might be or when they received it, either. It’s very possible that you have been included on a list of names of people with a credit score in their target area, however that might have been two or three years ago, perhaps longer. Your score may have fallen outside of their criteria since they got their list or your score may still be high enough to qualify, but your credit report may reflect some additional items that could also trigger a rejection which weren’t on your record years back. Factors like accounts going into collections or open accounts or current loans may suggest to the issuer that you may not be a great candidate for the card after all.
Simply put, you may have been pre-approved or pre-qualified based on old data and/or incomplete data. This is why they can and must run your credit report even after you’ve been informed of a preliminary acceptance.
The Truth Beyond the Offer
So now you know the difference between “Pre-Approved” and “Pre-Qualified” and what those two terms mean. But you’re still intrigued and you decide you want to pursue the offer. First off, since these preliminary declarations have only given the banks a minimal amount of information, your credit score has been unaffected thus far. That’s going to change once you initiate the process for approval.
Up until now, you have been subject to a “soft” credit inquiry and nothing more. A “soft” inquiry does not affect your score because it doesn’t delve very deeply into your credit report and history. It only offers limited data. But since every application is subject to a full analysis or “hard” inquiry, your credit will be affected as a result. So when you apply in full, giving them all of your personal information like name, address, Social Security number, financial obligations, and so on, only then will the card issuer do a full assessment of your creditworthiness to determine acceptance or rejection. This will then be reflected on your credit report and can result in a lowering of your score by upwards of 5-10 points.
That’s not a significant impact in the grand scheme of things, but it can prove challenging to individuals whose scores aren’t in the excellent range but instead teetering between a good score and a fair one. Basically, you need to be sure you’re not pursuing every offer you receive in the mail or you’ll end up putting a dent in your credit score without the credit to show for it. The banks won’t make that hard inquiry until you fill out the application and send it in.
Since the pre-approval and pre-qualification stage informs you that you have potential for a new line of credit, it’s now only a matter of meeting the prescribed underwriting standards of the banks now. This can lead to your ultimate approval or subsequent rejection by the bank for any number of reasons. As we’ve discussed, credit scores and reports can change over time and you may have met the criteria for approval at the time you were added to the list, but that doesn’t mean that you do now. There are three typical outcomes that you could face when you apply for a card from one of these offers.
The first is that you get approved outright and, congratulations!, you’ve got your new card at the terms and limits that were first provided in the preliminary offer. The second potential outcome is that you don’t get rejected, per se, but you’re also not approved for the card that you had expected you would be qualified to receive. Instead you’re given a card with less attractive terms like a higher annual percentage rate (APR), lower spending limit, fees you didn’t expect, and so on. Many of these offers will tell you (sometimes in that little tiny fine print) that there could be a range of terms and restrictions and you could ultimately be approved for a card at less desirable rates, fees, and so on. If this is the case, then you could face a potential problem as you may have to ultimately cancel the card.
Anyone who keeps a keen eye on their credit report knows that taking this step can also adversely affect their credit score, and now you’ve got the impact on your report without the benefits of having that card. This might require you to get on the phone with someone at customer support and tell them that you want the better terms you thought you were approved for up front or you’re going to cancel the card right this minute. Sometimes they’ll blink and extend some kind of improved alternative. But then who that needs hassle?
The third, of course, is that you’re denied for the card entirely. No higher fees or rates, you just simply aren’t getting the card. The reasons for rejection can be for any number of reasons. We’ve already talked about timing and how your credit report may have changed since the time of your pre-approval or pre-qualification, but new items like a missed payment or recent debt that has since been accumulated can trigger a negative reaction by the issuer. Once the bank pulls your credit report and sees the full breadth and width of your history, you may also be rejected based on your debt to income ratio, or you could even be unemployed at the moment or your current income is insufficient to qualify. But the good news is that you have a pretty great shot at getting that approval after you’ve been given an offer as the going rate for approvals is around 80%.
You may be wondering why you received a certain offer for a certain type of credit card from a certain company or issuer. These offers that come in the mail may seem haphazard and excessive from the sheer amount that arrive each month, touting all kinds of advantages and perks to membership, but each offer you receive has been carefully considered and targeted to you specifically. These pre-approval and pre-qualification determinants sometimes go beyond your credit score and other factors into areas that might seem just a bit unnerving if you stop to think about it for a second. In fact, it is quite frightening to think about how much personal information businesses can find out about your background and financial history from public sources of information and a few selectively purchased mailing lists.
Different banks and issuers target borrowers by varied standards that aren’t available on a credit report. They go after data that relates to your professional background, educational history, your phone provider, types of assets you own, basically anything that can give them a clearer picture of you as a possible cardholder. The issuers also look for potential customers by the type of card that they can afford or, more to the point, what type of card they ARE NOT eligible for based on lower credit scores, incomplete or insufficient histories, or they have been through a bankruptcy. Targeting offers to borrowers who may have been in the past or would likely be denied by the other banks and institutions provides those individuals with a solution to getting that credit card they are seeking and makes them more willing to accept the offer.
The issuers also find the particular interests or relationships to which borrowers belong. If you’re a member of AARP, you may just receive an offer for a co-sponsored credit card with the group. Perhaps you’re a big fan of a certain sports franchise or a sport in general; you’ll probably get an offer for a credit card with a team logo printed on it. These are just some of the many examples that exist as to how and why you may receive the offers you get in the mail on a regular basis. A bit creepy and spooky? You be the judge.
You’re Not Interested
There is a larger percentage of consumers who would prefer not to have their mailboxes cluttered up with this junk mail than those who are actually filling out the applications and sending them in. You probably get around 20 of them a year, even more if your credit is really great. Most of the time you don’t even open the envelope but just toss it in the trash. It might behoove you to shred those offers or tear them up instead. Although they don’t contain all of your personal information, all it takes is for some resourceful identity thief to get a hold of your Social Security Number in some other way and then fill out the application posing as you in order to get the card and use it. This type of identity theft can be catastrophic to your credit report.
Again, the likelihood for this taking place is on the low end but chalk this up to one of those “better safe than sorry” instances and make the extra effort to shred the envelope. If you want to take it one step further and avoid having to deal with them altogether, then treat them the same way you would those annoying telemarketers who used to call your house at dinner time and just opt out entirely. You may not be aware of this, but you can stop the credit card companies and banks from sending you offers on pre-approved credit cards. All you have to do is visit the OptOutPrescreen.com, website where you can have your name kept off of the pre-qualification lists that the banks request from the three main reporting bureaus. You can also call (888) 5-OPTOUT ((888) 567-8688).
Whether you’re using the site or the phone line, you’ll be asked for all of your pertinent information, basic personal stuff like name, address, date of birth, home phone, and Social Security Number. Don’t worry, providing this data is entirely safe and kept confidential, used only to exclude you from being visible for information mining purposes. Once you’ve made the request, you will no longer be included in the data lists for a period of five years. After that time, you need to renew your preference to opt-out, but for the next half decade you won’t be bothered by junk mail for credit cards that you don’t want or might not be eligible for anyway. This is also another smart way to protect your identity and keep your credit score, history, and valuable information protected from prying eyes that don’t need to see this data in the first place.
Maybe You Are Interested After All
There are other options if you are interested in applying for a new card but you still don’t want to deal with ripping up all of those credit card offers in your mailbox every month. There are ways you can be the one initiating the solicitation for pre-qualifications on credit cards instead. You can still opt out from the reporting bureaus’ data lists while pursuing some options with respect to finding yourself a great credit card that you’re pre-approved to receive.
Simply get online and perform some searches and you’ll find that most of the major banks like Bank of America, Chase, Discover, BarclayCard, and even American Express let you run a pre-qualification check at their websites. These are soft inquiries that won’t ding your credit score and, while these inquiries are noted on your history, they aren’t reported to lenders. So it doesn’t hurt to look and see what you might qualify for on a new credit card.
There are also some third-party sites that can match you with credit cards and issuers that are looking for consumers who meet certain criteria. This method is sort of a reverse version of the companies and banks pre-qualifying you through purchasing credit bureau lists. Whether you go the third-party route or contact the banks and issuers directly, it puts you in control of the vetting process by allowing you to seek out the best credit cards when you want, not when the companies decide to stuff your mailbox. You can conduct one of these checks on your own time, day or night, and still protect your credit.
But just remember, it’s easy and painless when checking if you’re pre-qualified for a card. Performing the deeper inquiries into your credit report by applying is going to have a greater impact on your credit history. So be sparing and selective in those applications as too many inquiries will hurt your credit.
Our Final Thoughts
If something sounds too good to be true, well, you know the rest. Just because you’ve received an envelope in the mail telling you something doesn’t necessarily make it so. This is often the case with pre-approved and pre-qualified credit card offers. Despite banks and card companies doing all of their poking and prodding into your credit, work, and educational histories you can still be rejected or approved for an alternative card with higher rates and fees than you might want.
The choice is yours; you can ignore these offers or apply for a new card if you think you’ll be accepted. Some folks may just prefer not to be bothered by the junk mail and there are ways to prevent the annoyance. But if you are a consumer who really wants a credit card, there’s no need to worry about pre-approvals and pre-qualifications. Just read unbiased credit card reviews, find the one you like and apply for it. Be sure your credit score and your report are going to be sufficient enough for approval first. There are a myriad number of cards available, many with great rates, perks, and benefits. Don’t wait for the card companies to come to you, get the card you want when you want it.