What are Pre-Approvals and How Do They Impact My Score? 

Do one thing: If you don’t want to receive pre-screened offers in the mail for credit cards and insurance, there are ways to opt-out. But remember, those offers could help you negotiate a lower rate from a lender. 

The Origin of Credit Card Offers

Have you ever wondered about the offers you get in the mail for new credit cards and personal loans? Sometimes they’ll use words like “pre-approved” or “pre-screened” in bold type across the front of the envelope. In our digital-first world, the offers can also pop up on apps or via the online banking dashboards we use to monitor our personal finances. 

All of which begs the question: How are credit card companies or other lenders able to determine if someone qualifies for a certain level of credit – or a super low introductory offer – without an application being filled out in advance?

How Pre-Approvals Work

For years, credit card companies and other lenders have used what’s known as a “soft inquiry” or “soft pull” to decide who gets certain promotional offers for new lines of credit. Unlike “hard inquiries” or “hard pulls”, which require your pre-authorization to give them a full look at your credit score. Additionally, although hard inquiries can ding your credit score by at least a few points, soft inquiries have no impact. 

Preliminary Approvals. So, what are these preliminary approvals based on? When a credit card or insurance company wants to bring in new customers, they can ask one of the national credit reporting bureaus to create a list for them – for a fee – with a group of people who have a credit score above a certain threshold and who meet other criteria.  While prescreening doesn’t hurt your credit score, notes the Federal Trade Commission (FTC), the requests will show up as inquiries on your credit report so you can see which businesses had access to your information. 

Not Always a Sure Thing

Unfortunately, for consumers not all prescreened or pre-approved offers pan out. It’s possible to get an offer saying you’re preapproved and then be turned away once you complete the full application. Why does this happen? Sometimes, your financial circumstances change between the time the offer was sent and when you contact the company. Your credit reports don’t include your income, or employment status, which also can be a factor if you don’t get the line of credit you were pre-approved for.    

Reasons to Opt Out

While there are reasons to opt out of receiving pre-approved offers:

• Less mail to recycle or throw out.
• Fewer companies digging into your credit history.
• Reduced chance of identity theft from dumpster divers.

Reasons to Not Opt Out

There are also some compelling reasons to continue to see what offers come your way. 

Consider this: For the millions of Americans who don’t pay off their credit card balances every month, the average annual percentage rate for those cards was hovering near 23% in the first quarter of 2024, an all-time high according to the Consumer Financial Protection Bureau. Because it’s an average, some people with lower credit scores are likely paying much more (hello 30%) while others can pay considerably less.

So for everyone carrying balances on high-interest credit cards, carving out some time to search for something lower is often in your best interest. If you are in the market for a new credit card, looking for a better rate on your home or auto insurance, pre-approvals can be a good way to gauge what’s currently available. They can also give you a way to compare costs more easily and offer a baseline for negotiation with a current lender

How to Get More Pre-Approval Offers

If you don’t regularly get pre-approved offers for new lines of credit, it may be time to work on building up your credit score. There are a few things you can start doing right away to give it a boost.  

• 1. Pay your bills on time, every time. Even one late payment can lower your score.
• 2. Knock down credit card debt. It’s best to use no more than 30% of your total available credit. 
• 3. Shop wisely for new credit. Only apply for more credit if you really need it.
• 4. Mix it up. The mix of credit you have – think student loans, mortgages, store cards, etc. – shows lenders how well you handle debt from multiple sources.
• 5. Hold onto older cards. Don’t cancel older credit lines if you can help it.

With reporting by Casandra Andrews