How to Evaluate Your Pre-Approved Credit Card Offer

pre-approved credit cards

Finding a new a credit card is a lot like waiting for a text message. When you want one, none come your way. But once you don’t need a new card, the offers come flooding in.

These credit card offers usually come with smart copy on the envelope that includes your name and desperate calls to action. Apply now and no interest for the next decade! Hurry up and apply or the envelope disintegrates into dust!

But as much personalization and urgency the credit card companies try to create, it’s easy to see that these are mass-produced offers. The question is, are they any good? Let’s find out!

How pre-approved credit cards work

How pre-approved credit cards work is fairly simple. Credit card issuers reach out to credit reporting bureaus for a list of borrowers that meet specific criteria. This inludes borrowers whose credit scores fall within a certain range.

Once they have their list of top potential customers, they send out mailers asking them to apply. These mailers will tell people that they are “pre-approved” for a specific type of offer. In reality, they’re pre-approved to be able to apply for that offer.

Once someone applies, then the offer could end up changing (or going away altogether).

Pros of pre-qualified credit cards

1. You get a credit card company’s best offer

One major bonus of pre-qualified credit cards is that the offer is likely the best offer they can give you. After all, this is a marketing tactic they’re using to get you on board – and they’re not going to use their B-game to do it.

According to Tim Baker, CFP® and founder of Script Financial, “Some of the most lucrative offers are those that are mailed for targeted marketing offers.” If you’re looking for a new credit card, it’s not such a bad thing to have the best you can get mailed to your door.

2. The pre-approval shows what you can get without a hard inquiry on your credit

As soon as you start applying for credit cards, lenders are going to make what’s called a“hard inquiry” on your credit report. Every once in awhile that’s okay, but do it too frequently and your credit score can take a hit.

However, with a pre-qualified credit card offer, that credit card issuer has already done what’s called a “soft inquiry” on your report and deemed you worthy of an offer. These soft inquiries don’t affect your credit score.

According to Baker, a hard inquiry can stay on your credit report for two years. Therefore, seeing what you can get by examining the pre-approved credit cards you’re offered is a better way to shop around if you’re worried about your credit score.

Cons of pre-qualified credit cards

1. The pre-approval is not a guarantee

One major con of pre-qualified credit cards is the misleading nature of their alternative name, “pre-approved credit cards.” You are not, in fact, 100 percent pre-approved. You are pre-qualified. A credit card issuer has preemptively decided you’re qualified to apply for a specific offer.

But you’re not actually approved for that offer until you apply. And, after you apply, you might find out that you’re not approved for that offer at all.

Kerri Moriarty, Head of Company Development, Cinch Financial, explains why:

Credit card preapprovals are not a guarantee. Sort of like getting a car insurance quote, you may or may not be approved at the quoted rate once you complete the full application.

The credit card company reserves the right to reject your application once they evaluate your full profile.

Chances are, if you made it this far, you’ll likely be approved for something. But it might not be that same offer they advertised to you in the mail.

2. There could be better offers out there

While it’s nice to have various offers come to you, focusing only on those could lead you to miss out on something better. Moriarty goes on to explain how this works:

It’s important that consumers know that when they receive an offer for a pre-approved credit card, it’s not a highly personalized offer.

The credit card companies evaluate consumers based on usual underwriting standards like your credit score and payment history, but the targeted offer is not based on your current credit card situation.

If you really are in the market for a new credit card, you should shop around and make sure you’re getting the best offer for you.

How to improve your chances of getting the best card

Shopping around for the best credit card might not be so easy if you’re not sure how to improve your chances of getting approved – or if you don’t know what is best for you. Here are a few things to keep in mind.

1. Work on your credit score

Always work on your credit score. Like the example I mention above, you won’t care about it until that’s the only thing you care about. So work towards building your credit or improving your credit now to ensure you can get a good offer when you need one.

How? There are a few simple practices you can follow, which you can find a lot more detail about from Experian. But for now, let’s focus on the basics.

  • Make all of your payments on time. I’m not just talking about debt payments. This includes cell phone payments, library card fines, rent, electricity, and so on. Don’t let any delinquencies hit your credit report. And remember that anything later than 30 days is considered a delinquency – you don’t have to fully default for something to negatively affect your report.
  • Keep your credit utilization as low as possible. If you have any revolving credit already, keep your balance at zero if possible and, if not, no more than 30 percent of the credit limit.

Payment history (above) and credit utilization make up more than half of your score, so focusing on these two things will be a great way to improve credit.

2. Shop around for a card that meets your needs

There are a lot of credit cards out there and a lot of offerings you might not know about. Let’s go over a few examples:

Sifferent types of credit cards can help you achieve different goals. As long as you use them responsibly (pay off your balance every month before interest accrues), then credit cards can help you do a great many things on your financial wish list. It all comes down to finding the right one for you.

If you are getting pre-qualified credit card offers in the mail, how do they stack up against your financial goals?

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