You open the mailbox and pull out a stash of envelopes. As you flip through a letter from Uncle Bill, the mailer saying you’ve won a vacation to Hawaii (act now!) and a few bills, you notice yet another credit card offer. This one, however, actually appears attractive — and wouldn’t you know it, you’ve been preapproved!
It’s time to sign up for that great card and book a real vacation to Hawaii, right? Or, have you been fooled by a clever marketing gimmick?
Let’s take a look at why you never really qualify for preapproved credit card offers in the mail.
What It Really Means to Be “Preapproved” for Credit Cards
“Preapproved” is a bit of a misleading term. Technically, it’s accurate. You’ve made it past an initial screening and the issuer has taken a step to contact you you as a potential customer. So, you are effectively in a “preapproval” stage.
However, the issuer has not checked anything beyond your credit card score. In fact, according to the Federal Trade Commission (FTC), this kind of credit card preapproval works in one of the following ways:
- An issuer establishes criteria, such as a minimum credit score, and asks a consumer reporting company for a list of people who meet that criteria
- An issuer provides a list of potential customers to a consumer reporting company and asks the company to identify those who meet the specified criteria
So, with preapproved credit cards, the issuer has typically just checked your credit score. It hasn’t verified your income or taken any other steps to decide whether or not to extend credit. That’s like saying you’ve been preapproved for a job because you have the degree the employer requires. You could get the job, but the employer has plenty of additional factors to consider before deciding whether or not to extend an offer.
Why Companies Advertise Preapproved Credit Card Offers
Short answer: it’s a marketing gimmick.
According to the City of Dallas, the average American adult receives nearly 560 pieces of junk mail each year. That amounts to around 11 pieces per week. As such, chances are slim you’ll take a second look at a given piece of unsolicited mail.
Also, according to the Direct Marketing Association (DMA), the response rate for direct mail is 4.4 percent. So, credit card issuers have about a one in 23 chance of getting a response from you.
However, if the offer implies you’ve been preapproved for a credit card — and you’re in the market for the best credit card offers – the game changes a bit. Suddenly, that credit card advertisement becomes more attractive. So, while you tear up and get rid of the rest of your junk mail, that piece of paper saying you’ve been preapproved for the XYZ Gold card is more likely to end up in your “to do” pile.
As an illustration, in October of 2012, DuPont Community Credit Union announced a 7.79 percent response rate to its latest credit card acquisition campaign, which involved sending mail to over 4,400 prospects. Prospects were informed they were “preapproved” for cards, among other enticements. In other words, by saying prospects were preapproved, the company increased the response rate to about one in 13 instead of the usual one in 23.
Watch Out for “Preapproved” Credit Card Scams
Credit card preapprovals from legitimate issuers are not technically scams, they’re marketing gimmicks. The line between the two isn’t always clear but, in a legal sense, the issuer is usually playing by the rules.
However, there have been numerous actual scams pawned off preapproved credit card offers. One such credit card scam occurred in the early 2000s. According to the FTC, Toronto-based First Capital Consumers Group offered US consumers with low credit scores a credit card with no annual fees and up to a $2,500 limit. The company collected a one-time processing fee of $189 to $219 for their efforts. However, instead of the promised preapproved credit cards, customers received coupon and discount offers for various items or a stored-value card that required a deposit.
Also, according to a 2011 report by the Better Business Bureau (BBB), one such scam was pulled by Union Credit Workers. The BBB reported that consumers were given a “credit card” that could only be used to purchase items from the Union Credit Workers catalog, and that some paid a $37 processing fee without ever receiving a card in return.
With such scams out there, the BBB provides the following red flags that an offer is a scam:
- Guaranteed credit limit, as an issuer cannot guarantee a limit without your specific credit information
- Near-term expiration date
- Payment is required before receiving your card
- No contact information
- Vague or misleading terms
Can You Opt Out of Credit Card Offers?
Being preapproved for a credit card is more of a marketing gimmick than a step toward approval. Before you’re actually approved, the issuer must check your financial information, which it hasn’t done at this point. Also, keep in mind that scammers may attempt to exploit your desire for a credit card, as was the case in the mentioned examples.
To avoid the hassle of wading through offers to find those that are legit, or if you’re simply happy with your current credit card issure, you may want to opt out of credit card offers altogether at optoutprescreen.com.
Ultimately, you should exercise caution before responding to a pre-approved credit card offer. Investigate the best credit card offers independently on the Internet or by speaking with others who already have your desired card. Don’t be the next sucker in a preapproved credit card marketing gimmick or, worse yet, a scam!