What’s the Deal With Credit Card Pre-Approvals?
If your mailbox is anything like mine, it’s filled with the same stuff each afternoon: bills, pizza delivery menus, and credit card offers. So, what do these credit card pre-approval letters really mean? Should you simply toss them out, or can they actually benefit you? Let’s take a look at what they are and why you should pay attention.
What Does “Pre-Qualified” Mean?
Banks will often pre-approve potential customers for certain financial products, including credit cards, loans, or other lines of credit. In order to provide these pre-qualifications, they will obtain a “soft pull” on your credit.
This soft pull, or inquiry, allows them to view basic information on your credit report, such as your credit score with a particular bureau. They can also see whether you have late payments, collections, or high levels of debt. While this soft pull is much less detailed than a true hard inquiry, it’s usually enough for a bank to confidently determine whether they would approve you for the product in question.
You may receive some of these pre-approval letters thanks to marketing lists. These lists are obtained by banks frequently, and are utilized to keep track of pre-qualified customers that fall under certain criteria. If you’re a homeowner, this is the reason you probably get mortgage refinancing offers. If you owe on student loans, you probably get personal loan pre-approvals.
It’s important to keep in mind, though, that just because a bank says you’re pre-approved, it doesn’t mean you’re actually, well, approved. This preemptive qualification simply means that they’re probably, maybe, sorta likely to approve you if you pull the trigger and officially apply.
Actually Getting Approved
To snag yourself that new credit-related product, you’ll need to get officially approved. That means giving the bank more financial information, as well as waiting for them to order a hard pull.
A hard inquiry, unlike a soft pull, will show up on your credit report for up to two years. By ordering this, the bank can see your most comprehensive, up-to-date credit information. They’ll get the current status of financial accounts, as well as see your latest payment history. Combined with additional information that you’ll provide on your application – such as your income and monthly expenses – the bank will be able to make a final determination.
Why You Want Pre-Approval
You may be wondering why pre-approval is even a thing, if there are still so many steps left in the approval process. It doesn’t actually mean anything, does it?
Well, there are actually a few benefits to pre-approval, especially as it relates to credit cards.
If you’ve been thinking about getting a new credit card, you’ve probably been tossing around a few different products. Comparing cash back rewards, debating an annual fee, investigating benefits… it’s easy to decide which cards you might want, but how can you really know if your application will result in approval?
Since each application will earn you a hard inquiry, you want to be prudent about your choice. Luckily, if you receive a pre-authorization in the mail for one of the cards you’re already considering, it’s probably worth the chance to apply. It means that the bank has a high likelihood of approving you based on what they’ve already seen, so that may help you narrow down your choices.
Many banks will even offer you pre-approval for their products before an “official” application. This lets you know, based on certain answers you provide, whether you’re likely to get approved in the end. Banks like Chase, Discover, CitiBank, and Bank of America offer this service for many of their credit products, helping you determine whether your odds of approval warrant the effort (and hard inquiry) moving forward.
Lastly, some sites (like CreditCardReviews.com!) will narrow down credit card choices for you, based on your credit score. This makes it easy to see which cards typically approve applicants with similar credit scores to your own, and whether you should go ahead and apply. You might even be surprised to learn that a card you thought was far out of your reach, is actually a possibility.
Why You Don’t Want Pre-Approval
Of course, there are some downsides to a credit card pre-approval. The biggest one is obvious: while it gives you a better idea of your approval likelihood, it isn’t a guarantee of anything at all.
There’s always the chance that you send in an application on a card for which you were pre-approved, get the hard inquiry ding on your credit report, and still get denied. This happens for a number of reasons: maybe your income was too low, your expenses too high, or maybe the most updated credit history bumped you out of the bank’s acceptance level. Either way, it can leave you pretty frustrated.
With that said, the occasional hard inquiry (even if it results in a denial) isn’t a terrible thing. In fact, you can rack up a few inquiries a year without it negatively impacting your credit score. Plus, if you’re denied after a bank pulls your credit, you can request a copy of that report free of charge.
Getting a new credit card can be exciting, even if a little nerve-wracking. Pre-approvals can help you narrow down the products for which you’re most likely to get approved, making the decision easier. Banks can even offer online pre-approval at your request, letting you know whether it’s worth your effort to officially apply.
Just be sure to take pre-approvals with a grain of salt. They aren’t approvals, and you can still be denied, but it’s nice to know that those endless letters aren’t just junk mail after all.