Think Twice About Those Credit Card “Preapprovals” You Get in the Mail!

Well, it’s that time of year again… every year, beginning in late summer and lasting almost until Christmas, we are continually bombarded with those “Preapproved” Credit Card offers in the mailbox. You know the ones that I mean…open this or that credit card, no interest until 2018, etc. Tempting, aren’t they? But, should you sign up for one?

Most people who get credit card offers in the mail assume that preapproved means you’ll automatically be approved should you decide to sign up for the card. But, the truth is, that’s not necessarily the case.

What exactly does being “preapproved” for a credit card mean?

Banks, financial institutions, and credit card providers use a pre-screening process to determine which consumers may be a good fit for a particular credit card. During this process, the bank checks credit histories and credit scores through a third party or credit bureau, and if they meet the criteria, the bank may send out a “preapproval” offer. But that preapproval offer does not necessarily mean that you will actually get the credit card in the event that you actually do apply.

You see, the preapproval credit check was a soft inquiry, meaning that there was not impact to your credit score during the prescreening process, however, when you apply, the bank or financial institution will do a “hard” credit inquiry, and once they take an actual closer look at your credit, you may not ultimately qualify for the offer, or the actual interest rate that you are offered may be different than what was shown on the offer (based on your credit). Even worse, that “hard” credit inquiry may have hurt your credit score.

So what should you do with those “preapproved” credit card offers?

Typically, I use the preapproved offers in my mailbox to see if they’re actually the best offer available to me. The terms of these offers is often better than those available to the general public. For example, if the card offers me the opportunity to get a zero percent APR for more than a year, or a free balance transfer with a lower interest rate, then it may be worthwhile to transfer a balance from a higher interest rate card.

Of course, before you apply, do your homework. Make sure that the credit card fits your needs, that the interest rate is actually lower, and that it is appropriate for your credit score (otherwise you may be denied).