What credit card preapproval really means

Have you ever opened your mailbox to find an advertisement from a credit card company? If so, you may have received a pre-approved offer of credit.

Getting a credit card pre-approval can be nice if you’re in the market for a new credit card, especially if the card comes with a special welcome offer. But you shouldn’t think that pre-approval guarantees that a card issuer will approve your credit card application if you apply.

Here’s what it really means when you receive a pre-approved credit card offer.

How pre-approved credit card offers work

In the United States, there are three major credit bureaus (Equifax, TransUnion and Experian) that collect and maintain financial data about millions of consumers. The credit bureaus make money primarily by selling that data to other businesses like credit card companies, lenders and insurance providers.

Credit card companies often purchase consumer data from a credit bureau for marketing purposes. A card issuer can give a credit bureau a set of search criteria (i.e., location, minimum credit score, no bankruptcies, etc.) and then receive a list of consumers that match those requirements.

Per the Fair Credit Reporting Act (FCRA), the credit bureaus may share (aka sell) consumer credit information to companies that wish to offer credit or insurance.

For example, a card issuer could buy a list of 2 million consumers (names and addresses) in the Chicago metro area with the following criteria:

• A minimum FICO score of 700
• No late payments in the past two years
• No bankruptcies on their credit reports

If your name appears on the list, a soft credit inquiry will appear on your credit report to let you know that the card issuer has accessed some of your credit information.

The credit card company might then mail out a “firm offer of credit” to everyone included on the prescreened list.

Tip: If you don’t want the credit bureaus to share your information with other companies for marketing purposes, you can visit OutOutPrescreen.com or call 888-5-OPTOUT.

What happens when you want to accept a pre-approved offer?

Getting a pre-approved offer can be a good sign when it comes to your odds of qualifying for a new credit card account. However, it’s not a guarantee of approval. Some card issuers may use the term “pre-approved” without a soft credit inquiry. Even with a firm offer of credit that includes a preliminary credit check, you still have to apply to open a new account. Be sure to note on any documentation you receive from the issuer whether you have to apply through a dedicated link or include a specific application code.

An official application can help the card issuer ensure you meet its full criteria to qualify — including income, employment status and other factors. The card issuer will also perform a hard inquiry on your credit report to see if anything in your credit history has changed between the time it sent you a pre-approved offer and the application. According to FICO, a new hard inquiry may temporarily lower your credit score, though usually by fewer than five points.

Related: 4 incorrect assumptions about your credit score

Why you might be denied after a pre-approved offer of credit

It isn’t common, but a credit card issuer could deny your application even after sending you a pre-approved offer of credit. The exact reason for such a denial can vary from one applicant to the next. Below are a few reasons why a card issuer might reject your application after sending you a pre-approved offer.

• Negative credit changes: Credit changes that indicate you could now be a riskier borrower might cause a credit card company to change its mind about a pre-approved offer. Such changes might include new late payments, lower credit scores, higher credit utilization, new credit inquiries or other types of information the card issuer considers to be negative.

• Debt-to-income issues: Your income doesn’t appear on your credit report. So, a card issuer won’t know how much money you earn — and how that income relates to your existing debts — until you fill out an official application. You’ll need to satisfy all of a card issuer’s qualification requirements (income-related criteria included) to qualify for a new account.
• Internal policies: Credit card companies can set their own internal application restrictions that you need to satisfy to qualify for a new account. Chase, for example, has its unpublished 5/24 rule that prevents most consumers who have opened five or more credit cards in the last 24 months from opening a new credit card account with Chase. And if you already have several accounts open with a card issuer, you might not be eligible for another, or you could have to reshuffle around your available credit limits to open a new account.

Related: The ultimate guide to credit card application restrictions

How to get pre-qualified for a credit card

It’s easy to shop around for the best credit card offers available. Yet figuring out which credit card offers you’re most likely to qualify for can be more of a challenge — especially if you’re struggling with less-than-perfect credit or have little to no established credit history.

The good news is that there are several online tools you can use to figure out if you’re a good candidate for certain types of cards. You can use CardMatch to discover whether you pre-qualify for certain card offers from American Express like The Platinum Card® from American Express and the American Express® Gold Card. Capital One and Discover offer pre-qualification tools as well.

Bottom line

As with preapproved offers that card issuers send out independently, a pre-qualification doesn’t guarantee that you’ll be eligible for a particular credit card product. However, going through the pre-qualification process can help you make a more informed decision before you fill out an official credit card application. As always, be sure your credit score and history are in good standing while also noting an issuer’s restrictions before applying.

Related: How to find the best pre-qualified credit card offers