You may have received an email or letter informing you that you have been prequalified or pre-approved for a credit card. The offer may look attractive but may leave you wondering—what does it mean to be prequalified for a credit card?
If you have prequalified for a credit card, a creditor has done a soft pull on your credit and determined you have over an 80% chance of getting approved for their card.
How did they get your information? When credit card companies are looking for new customers, they will purchase information from the major credit bureaus: Equifax, Experian and TransUnion. For example, an issuer such as Capital One may request a bulk list of everyone who has a credit score over 700. Once they’ve received this consumer information, they will send pre-approval letters to these individuals in the hopes that some will apply for their credit card.
This can be very beneficial to creditors since they can find new cardholders. But this can also help consumers since they should only apply for a card where the approval is likely. Every time you apply for credit, the company performs a hard pull on your credit. If you have enough of these pulls during a short period of time, your credit score could decrease for a period of two years.
This is the benefit of a pre-approved offer. If you are in the market for a new credit card, knowing you are prequalified means you should get that card. Hence, you will not be risking a number of hard pulls on your credit. When you research credit cards on your own, it is not always obvious to see the minimum qualifications, which can include income or a certain credit score. Thus, you may choose a card for which you would not qualify because you do not meet these minimum requirements.
Be cautious when you receive a prequalified offer for a credit card. You will want to carefully read the fine print to check the interest rate and fees. Additionally, see if the credit card offers any rewards. After you have determined the interest rate, fees, and rewards, you may want to plug your credit score into a credit card comparison tool to see if there are better cards on the market for you.
If the offer seems like the best one for you, fill out the company’s application either online or via the paper application. At this point, the creditor will perform a hard pull on your credit. When you apply online, decisions are usually instantaneous, so you will find out if you have been approved, and your card will be mailed to you, which generally takes 7-10 business days.
If the company does not approve your application, they are required to send you an explanation in the mail, and you can access a free copy of your credit report to see what negative information could be holding you back. At that point, you can take steps to improve your credit score.
Don’t want to receive these offers? You can opt out at OptOutPrescreen.com. From that website, you have a number of options. You can either opt-out for a period of five years, opt-out permanently, or opt back in if you have declined offers in the past.