Credit Sesame on why being pre-approved for a credit card puts you in a stronger position.
Why Being Pre-approved for a Credit Card Puts You in a Stronger Position
Eager to get a credit card? Getting pre-approved for one can put you on the fast track to getting that plastic and reaping its perks. But it’s important to first understand what “pre-approval” means, how to get pre-approved, the differences between being pre-approved and pre-qualified, and what you can do if you aren’t pre-approved.
Learn more by reading this article and adopting tips suggested by industry experts.
What is Credit Card Pre-Approval?
If you desire a particular credit card, you can always apply for it online or through the mail. But you stand a better chance of getting approved if you are “pre-approved” for that card.
“A credit pre-approval is a marketing strategy that allows credit card companies to prescreen consumers based on criteria like their credit score or income,” explains Andrew Latham, a certified personal finance counselor and owner of SuperMoney in Santa Ana, California.
Pre-approval is not something you can typically apply for on your own. Instead, you may receive an unsolicited credit card offer via snail mail or email that indicates you’ve been “pre-approved” for that card.
“It’s a service that financial institutions conduct on behalf of their customer base and according to the needs that institution has to increase credit card usage as a way to boost revenue,” says Cyndie Martini, CEO/founder of Member Access Processing, the nation’s largest aggregator for Visa card services to credit unions. “Financial institutions do research on who qualifies and predetermine which cards a particular customer should be pre-approved for.”
What are the Benefits of Getting Pre-approved for a Credit Card?
Although there is no guarantee you will ultimately receive a credit card you apply for after first being pre-approved, your odds are more favorable.
“Being pre-approved for a credit card saves you time and avoids the need for multiple dings on your credit which can happen when you’re shopping for a new card,” Latham notes. “Every time you submit a formal application for a credit card, you get a hard inquiry on your credit report that will lower your credit score by 5 to 10 points. If you apply for five or six cards, that starts to add up and can lower your credit score considerably.”
Consider, too, that owning and using a credit card can improve your credit rating over time. Being pre-approved makes it easier for you to get a specific credit card.
“Having credit extended to you in the form of a credit card, which is considered a revolving account, can help establish a strong credit score,” says Ivory Becker, owner/founder of Insight Strategies Credit Repair in Vancouver, Washington. “If you’re looking to build a credit score or reestablish a strong score, you must show that you are creditworthy. A person who is extended a line of credit and can utilize it responsibly will see a positive impact in their credit score.”
How to get Pre-approved for a Credit Card
As mentioned earlier, pre-approval credit card offers usually arrive unexpectedly in the mail or by email. An offer usually comes from a financial institution you already do business with, such as your existing bank, favorite retailer, or mortgage lender. If you like the pre-approval offer presented, you can either complete the paper application (usually included with the snail mail letter) or visit the company’s website to submit an online application.
If you have not received a pre-approval offer by mail or email but want to see if you are pre-approved for a particular credit card, some credit card issuers will offer an online pre -approval process.
“First, determine which credit card you would like to get pre-approved for,” suggests Becker. “Next, check to see if the issuer offers a pre-approval. You can identify if this is available by looking for language on their website that says ‘see if you are qualified with no inquiry’ or ‘see if you are qualified with a soft pull.’ This indicates that there will be no adverse impact to your credit score through your initial inquiry.”
Be aware that you’ll need to answer a few questions to determine whether you are eligible, Latham explains. “Once you do that, the credit card company will show you which offers you are pre-approved for. If you decide to go ahead with one of the offers, you’ll need to answer a few more questions to finalize the application.”
After completing the online pre-approval application, hit “submit.” You should receive notice quickly if you are likely to be approved for the credit card based on a soft credit check, Becker continues.
If you are notified that you are pre-approved, you can then submit a formal application for the credit card, at which point a hard pull of your credit will occur.
Pre-approval Versus Pre-qualification
You may instead receive an offer that says you’re “pre-qualified” for a credit card.
“The terms ‘pre-qualified’ and ‘pre-approved’ are often used interchangeably. However, pre-approved often implies that you have met more stringent eligibility criteria,” says Latham. “Pre-qualified status is sometimes used as an initial screening tool that looks at one or two factors – such as your credit score. However, a pre-approval will usually involve a more detailed look at your personal finances.”
“Pre-approval means the specifics of your credit profile are reviewed beyond your credit score, like on-time payment history and credit utilization rates,” she says.
If You Can’t get Pre-approved for a Credit Card
Encountering difficulty getting pre-approved? Not receiving pre-approval offers in the mail or in your inbox? Your credit profile/history may be the culprit.
“You may need to work to pay down any high balances on your existing credit cards first. This can be done through a debt consolidation loan or by paying more than the minimum payment on your credit cards every month,” recommends Becker.
Additionally, carefully monitor your credit score and work to improve it.
“The best way to boost your credit score is to make regular payments on rent, loans, regular bills, and utilities. And if you have existing credit cards, ask for an increase in your credit debt limit and challenge any fraudulent charges you notice on your statements,” Martini advises.
Lastly, check each of your three free credit reports by visiting Annualcreditreport.com and dispute any errors you notice that may be bringing down your credit score, adds Latham.
Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.