"Congratulations. You have been pre-approved for a credit card."
"Low interest rate."
"Credit limit of up to $100,000."
Attached to the letter is a short application with some fine
print on the front and back.
But what does it really mean?
Credit card issuers are constantly seeking out new customers
to replace those who leave and to sustain growth. With the combined costs of
advertising and application processing, establishing new accounts can be rather
expensive. The "acquisition cost" can reach as high as $200 or more per account.
Response rates for direct mail tend to be very low. It is common for less than
3% of the recipients to complete and return the application.
Rather than simply mailing credit card offers to everyone with
an address, banks try to target their mailings towards consumers who are more
likely to respond, qualify for a card, and become profitable customers. When
preparing for a mail solicitation campaign, a card issuer may send a set of
minimum standards to one of the credit bureaus (Equifax, Experian, or Trans
Union), and request a list of consumers whose credit reports meet the qualifications.
The bank may send a list of consumers obtained elsewhere (e.g. from a marketing
database company) and have the bureau return a subgroup that matches the criteria.
"Pre-approved" offers are then sent to everyone on the list, and may arrive
in the consumer's mailboxes as long as two months after the credit bureau screening.
If you have a copy of your credit report, you may see inquiries
that are designated as "promotional." This means that your file was checked
for a "pre-approved" list, although it does not necessarily mean that
you qualified to receive an offer. Since this type of inquiry was not initiated
by you, it is not seen by other prospective creditors to whom you might
apply, and will not reduce your FICO credit score.
Some sub-prime issuers actually use this type of screening
to look for with moderately damaged credit, who are more likely to be willing
to pay the high interest, fees, and/or deposits required by such issuers.
When a consumer completes the application and returns it, it
goes to a processing center (which may be owned by a separate company
from the issuer) where the data is entered into a computer system which
then does a credit check on that specific individual. This is to determine
if anything in the consumer's credit file has changed for the worse since
the original sweep, and the qualification criteria may be higher. This
credit check (not the original one) is used for final approval
or rejection of the application. Sometimes fairly subtle changes in the
consumer's file (like total available credit or balance-to-limit ratio)
since the pre-screening can result in a rejection.
Final approval is also dependent on your application information
(e.g. income) meeting issuers standards, so if this is insufficient, you will
Oddly, some "pre-approved" mailing lists from high-standard
"prime" issuers sometimes include people who have no credit history at
all, and will certainly be declined.
A "pre-approved" credit card offer does not mean that
you will definitely receive a card. When an interest rate is promised as being
"as low as" a certain amount, that is not a guarantee of that rate. And
"up to" a certain credit limit does not necessarily mean that it will
be anywhere near that. (Average starting limits for gold and platinum cards
are well under ten thousand dollars.)
Some people do not wish to receive pre-approved credit card
offers. They may object to direct mail, or lack interest in obtaining more cards
(or any cards at all), or may have privacy or security concerns. If this includes
you, then you can call the following number to request that the credit bureaus
not include your file in any pre-approved/promotional sweeps: