Each day, preapproved credit card offers fill the mailboxes and inboxes of millions of Americans. Before accepting one of these offers, you should know a few basic facts about what you might be getting into. So before you go any further, read through this list of seven interesting — and sometimes surprising — facts about preapproved credit cards.
1. Credit Card Companies Get Your Info From Credit Bureaus
Have you ever wondered how you prequalify for credit cards from companies when you don’t do business with them? The truth is that credit card companies get your information from the major credit reporting agencies.
Although the Fair Credit Reporting Act limits who has access to your personal financial information and the details on your credit report, there’s an important exception: Insurance companies and credit card companies searching for new customers for their products can access credit report information as long as they commit to offering products — such as pre-qualified credit cards — to the qualified individuals they identify.
Here’s how it works. The lender creates a list of criteria its potential new customers should have, and sends the list to the credit reporting agency — a process known as “pre-screening.” The agency then runs the list through a computer program. The result is another list of individuals who might qualify to receive the lender’s preapproved credit card offers.
2. You Can Opt Out of Receiving Preapproved Credit Card Offers
Not everyone likes the idea of credit card agencies going through credit reports on behalf of lenders and insurers who want to offer products. After all, if you’re not interested in the offers, it’s simply more junk mail for the recycling bin. Fortunately, you have the option to opt out.
The three major credit reporting agencies — TransUnion, Equifax and Experian — and a smaller agency, Innovis, have banded together and created both a phone line and a website for consumers who don’t want to receive these offers.
Submit an opt-out request by calling 1-888-5OPTOUT, or visiting OptOutPrescreen.com. Your request is good for five years.
Here are two more key points when opting out of receiving credit card offers:
- Although your request should be processed within five business days, you might still receive offers from companies that got your name before it was removed from the supply list.
- You will still get credit card offers from companies that don’t use the credit bureau lists unless you opt out through Direct Marketing Association. Visit the association’s website for more information.
3. Your Application Might Be Rejected
Even though your information has been pre-screened by a credit bureau for a preapproved list, it’s still possible you’ll be rejected for the new card after you accept the offer. Words such as “preapproved” and “pre-qualified” are unregulated, and there aren’t strict rules regarding what they mean when they’re used in preapproved credit card offers.
A preapproval is just an offer — you still have to apply for the card to receive final approval, and the credit card company doesn’t have to give you the card. When it comes to credit card offers, think of a preapproval as more of an invitation to apply than an actual approval.
4. A Preapproved Offer Won’t Impact Your Credit Score, but Acceptance Will
Receiving a preapproved credit card offer does not impact your credit score, but accepting the offer will negatively affect your credit. Your lender won’t check your credit until you apply for the offer. When the lender requests your credit info, it will be in the form of what is known as a “hard inquiry” on your credit. That means a record of this inquiry will remain on your credit report for 24 months, and your credit score will fall a bit.
For those reasons, it’s wise to be selective about the credit card offers you accept. The more offers you accept, the more hard inquiries are made on your credit, and the greater the negative impact on your credit score. Over time, this negative impact on your score will fade.
5. You Might Be Offered a Higher Rate Than You Expected
If you decide to go ahead with a preapproval offer, send your application into the lender. At that point, the lender will check your credit score. And although you might be approved, the lender doesn’t have to give you the precise terms it offered in the preapproval letter.
For example, if your credit score is relatively low and you have a few bruises on your credit history, you might be offered a higher annual percentage rate than was quoted in the preapproval offer.
Related: Best Credit Card Offers of 2016
6. These Offers Might Have Other Benefits, Like 0% Balance Transfers
Before you throw your offer in the trash or rush to get on the opt-out list, consider that preapproval offers might actually benefit you. Read the fine print carefully. Some credit card preapprovals offer 0-percent interest when you make balance transfers from other credit cards. Other preapprovals offer a low introductory rate for purchases.
Note when zero-rate or low-rate offers expire, and think about whether accepting such offers might help your financial situation. Bear in mind that in many cases, a card’s rate will increase after the introductory period ends. So if you do accept one of these offers, budget to pay off your balance before the rate jumps.
7. You Can View a List of Preapproved Bank Offers Online
If you haven’t received many preapproved credit card bank offers, don’t feel left out. To see what’s available, visit the website of the bank or credit card company you might be interested in and search for its list of pre-screened offers. It’s fast and free, and it won’t affect your credit score.
Only you can decide if a preapproved credit card offer makes financial sense. The more information you have, the better equipped you’ll be to make the best choice for your financial situation.