Preapproved Credit Cards: Why Approval Isn’t Guaranteed & How to Opt-Out
A preapproved credit card offer neither contains an active card that you can begin using immediately, nor does it provide a guarantee that you’ll be granted the card should you ultimately decide to submit a formal application. Rather, it’s a target marketing technique that issuers use to increase application and approval rates and thereby optimize their advertising budgets.
More specifically, credit card companies use basic underwriting data from the major credit bureaus to determine which credit card offers to mail different types of consumers. This is more effective than sending the same offer to everyone en masse because inevitably a large portion of the market either won’t qualify or would never apply since their credit standing and income merit something better. You’re simply more likely to seriously consider an offer if it represents a feasible upgrade over what’s currently in your wallet.
While preapproved credit card offers are typically conveyed to consumers through traditional mail, credit card companies are increasingly allowing people to visit their websites and input their name, date of birth, and Social Security Number to automatically determine which cards they are preapproved for.
It’s also interesting to note that while most people consider the terms to be interchangeable, there are actually three distinct types of targeted credit card offers: 1) preapproved offers; 2) preselected offers; and 3) Invitations to Apply (ITAs). Each one is based on different information and indicates a different level of approval likelihood.
We will discuss these nuances and more in further detail below.
|What It Means||Info Used to Target||Acceptance Rate|
|Preapproved||Your credit track record indicates that you are the type of consumer the card issuer wants using its product, and you are almost assured of getting the card should you apply.||Depending on the issuer, credit data from 1-3 major credit bureaus and, potentially, credit scores as well.||90%|
|Preselected||You fall within the issuer’s general underwriting criteria, but more information is needed to verify your suitability for the card in question.||Same as with preapproved offers, but discrepancies between reports or thin files may reduce issuer certainty.||70%|
|Invitation to Apply||The issuer believes that you might be interested in submitting an application for the card given your interests and/or demographic information. However, the issuer is making no assurances about the suitability of your credit standing.||Non-credit data such as your ZIP code and housing situation.||10% - 40%|
Receiving a preapproved credit card offer merely indicates that you meet the general criteria for approval based on credit report data. You will still need to apply, provide additional context about your finances, and allow the issuer to thoroughly vet your suitability for the product in question.
In doing so, the issuer will obtain updated versions of your major credit reports as well as evaluate your income, assets, and employment status. This added data may skew the issuer’s original perception of you, either solidifying your case for the card in question or leading your application to be denied.
Credit card companies can’t simply take care of that ahead of time, thereby making it so a preapproved offer literally conveys approval, because the Credit CARD Act of 2009 requires them to evaluate an applicant’s ability to pay prior to granting a new line of credit. Issuers cannot obtain that information from your credit reports; you must instead provide it for them.
In other words, while credit card companies can estimate your likelihood of approval and therefore bring applicable offers to your attention, they can’t take care of all the back-end evaluation that is a prerequisite to the extension of credit without your go-ahead (which is what an application serves as) or you filling in some of the blanks (such as income information).
If the lack of certainty involved with preapproved offers gives you pause about following through with an actual application, that may prove to be a blessing in disguise. Preapproved credit cards are useful to issuers given how bird-in-hand psychology promotes applications, but they don’t provide the context necessary to ensure that you’re getting the best product for your needs. Any credit card will seem amazing based on the issuer’s marketing copy alone, and thus finding the right credit card necessitates comparing offers across issuers in order to gauge what rewards, interest rates, and/or low fees are actually attainable. You may discover that the card you were sent is, in fact, a great deal, but it’s impossible to make that determination in a vacuum.
It’s no secret that credit card companies send us far more mail than we’d like to receive. But while unnecessary correspondence can certainly be annoying, the potential inconvenience doesn’t even compare to years past, when issuers were allowed to send consumers preapproved credit card offers that contained live plastic.
As you might imagine, receiving an actual credit card in the mail when you haven’t submitted an application would be understandably disconcerting, as it would raise questions about fraud, payment liability, and credit score damage. However, that all changed with the passage of the Unsolicited Credit Card Act of 1970, which added the following language to the federal Truth in Lending Act put into place two years earlier:
“No credit card shall be issued, except in response to a request or application therefor. This prohibition does not apply to the issuance of a credit card in renewal of, or in substitution for, an accepted credit card.”
In other words, a bank can’t just send you a live credit card that you are able to use right out of the envelope, but it can automatically renew your account upon expiration as well as extend you a substitute account if you don’t get approved for the specific offer that you apply for originally.
The fact that fewer unsolicited credit cards are floating around out there is undoubtedly good for the environment. While “the bulk of a credit card can be biodegradable, if produced from polymers derived from plants,” according to Richard Venditti, a professor in the Department of Wood and Paper Science at North Carolina State University, most credit card companies do not use such materials and even if they do, “the magnetic strips and other metallic inks, on the other hand, may not be biodegradable portions.”
Much like you can request that telemarketers place you on their “do not call list,” you can choose to stop receiving prescreened credit card offers in the mail. All you have to do is visit OptOutPrescreen.com – the credit card industry’s official “do not mail” portal – and decide whether you want to stop receiving offers for five years or permanently (don’t worry, you can always opt back in at a later date). It’s important to note that opting-out will only stop creditors from sending you preapproved and preselected credit card offers. It doesn’t cover offers that aren’t based on credit data (aka Invitations to Apply).
If you want to further reduce the junk mail that you receive, you can also opt-out through the Direct Marketing Association’s Mail Preference System. Filling out their online form or mailing your opt-out request and paying a $1 processing fee will result in your name being added to the organization’s “delete” list, which is disseminated to participating direct-mail marketers nationwide.
The good news for those of you who hate unnecessary credit card correspondence is that direct mail marketing is expected to decline significantly in the coming years. In fact, direct mail rates reached record lows in 2012, according to the marketing analytics firm Mintel. And while they bounced back in 2013, the process simply isn’t as cost-effective as it once was.
More information about the opt-out process as well as the environmental and anti-fraud benefits of leveraging it can be found on WalletHub’s Junk Mail page.
At the end of the day, a preapproved credit card offer is nothing but a clue. Receiving one in the mail doesn’t mean that you can immediately begin making charges, nor does it guarantee that you’ll get approved for an actual account if and when you do apply, but it will give you a good sense of your credit standing. For example, if you receive an offer for the Capital One Venture Card, that’s a pretty good indication that you have above-average credit.
Being aware of where your credit stands is very helpful when it comes to evaluating the status of credit building efforts as well as comparing financial products. Receiving preapproved offers for cards that are targeted to folks who have much worse credit than you may even reveal identity theft or credit reporting errors as well.
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