How Pre-Approval Offers for Credit Cards Work

You may wonder why the credit card issuer is contacting you if you’ve ever received a credit card pre-approval offer in the mail. How do they know you’d be a good customer? And why are they extending you an offer without prompting? Are these offers guaranteed?

Credit card preapprovals are a marketing tactic used to encourage customers to apply. Therefore, if you receive an offer with low interest rates or exciting rewards, know that your credit card company is not making any promises.

How Pre-Approvals Work

In order to acquire new customers, credit card companies don’t send pre-approval letters to every house on the block. Based on limited information provided by the credit bureaus, they target consumers who look attractive. The process is as follows:

Credit card companies request consumer information from one of the three credit bureaus – Experian, TransUnion, or Equifax. They are looking for consumers who meet certain criteria, such as holding a certain number of accounts or having a credit score that is within a certain range. As long as you meet the criteria, your name is included on the list provided to the credit card issuer, and they will send you a pre-approval letter in the hopes that you will apply.

This process does not affect your credit score since the credit card issuer does not access your actual credit report. If you don’t apply for a credit card, the credit card issuer won’t pull your credit. In the event you do submit an application, the hard inquiry could lower your credit score a few points, but not significantly.

Pre-Approvals Are Not Guaranteed

If you received an attractive pre-approval offer, you might think it’s a no-brainer to accept it and get your shiny new card.

No, not so fast. Getting preapproved for a credit card is not a guarantee – it’s more of an invitation to apply. You must still apply and wait for approval while the credit card issuer checks your credit report and credit score.

After pulling your credit, the credit card issuer may discover that your credit isn’t good enough. You can still be rejected or approved for different terms than those stated in the pre-approval letter. A pre-approval offer is not binding.

In Closing

Credit card pre-approval is essentially a marketing strategy used by credit card issuers to generate interest among potential customers who meet certain criteria. A credit card company can still decline your application or offer you different terms if you submit one.

You should review pre-approval letters for great offers, but remember that there’s no guarantee. As a bargaining tactic, you can use credit card pre-approvals to negotiate better terms for your existing credit card.

Remember to shred pre-approval letters instead of throwing them in the trash intact. Even though it’s unlikely that an identity thief could open a credit card in your name using your pre-approval letter, it’s not impossible. It would be better to eliminate the risk completely by destroying the pre-approval letter.

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