Those preapproved credit card offers that hit your email inbox may be easy to ignore, delete or mark as spam. Not so with physical mail that arrives when the postman visits your mailbox. These offers from banks and other financial companies come in several forms, tempting you to take the bait and discover whether these cards are right for you. One thing is for certain: If you actively pursue the offer, your credit score will be impacted, regardless of whether you qualify for the card or not.
Credit Scores and Inquiries
The FICO score, named after its developer Fair, Isaac and Company, is typically used by most financial institutions in their decisions regarding loan and credit card applicants. Ranging from 300 to 850, it is generated by a mathematical algorithm that uses data from your credit report and designed to predict your risk of default. A hard inquiry is placed on your credit report whenever a lender requests your credit score when you apply for a credit card. Hard inquiries normally lower credit scores. Promotional inquiries, such as by lenders making preapproved credit offers, make soft pulls on your report that don't impact your score.
The preapproved credit card offer that you receive will have begun its life as a prescreened list, sometimes called a bureau extract file. Financial institutions routinely provide credit bureaus with a set of criteria to be used in generating a list of potential candidates for credit card offers, such as those in a certain credit score band. Bureaus then forward the extract file to the institutions for internal audit and action. The screening process is a soft inquiry that doesn't hurt your score.
Taking the Preapproved Offer
Looking at preapproved credit cards won't affect your credit score. The moment you proceed to fill out the credit card application form, you're on your way to influencing your credit score. Once submitted, your application will be reviewed by the same lender that profiled your credit history, only this time a hard inquiry will be initiated, which does hurt your credit rating. Every time you fill out the enclosed credit application form, your credit score drops by a couple of points. Each credit inquiry will impact your score for one year.
Preapproved, Not Qualified
Just getting the preapproved credit offer doesn't guarantee that you qualify for the credit card. You still might get rejected because the lender didn't actually pull your credit report -- it just screened you against some parameters. Two things can happen. If you apply and get the card, your score will dip slightly due to the hard inquiry but will eventually go up because you've increased your credit utilization, as long as you maintain low balances and on-time payments. If you are rejected, you're stuck with a hard inquiry that knocks off some points.
Dr Jack Gordon, the Chief Technology Officer at Strontium Logistics, is a 20-year veteran of the engineering and marketing business who favors stiff drinks, good debates and developing innovative digital marketing strategies to help companies grow.