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:
- Credit newbies or those who can’t get approved for a credit card should try a secured credit card .
- Anyone looking to consolidate debt with a low- or no-interest credit card will want to look at a balance transfer credit card.
- For those with big dreams of traveling the world, a travel rewards credit card can help make it happen.
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?
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.81% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|