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Q&A with Grinstein-Weiss and Despard: Credit card pre-approval letters and credit score

Offain Gunasekara
March 21, 2018
credit card pre-approval letters

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Credit card pre-approval letters can certainly fill up your mailbox — and your recycling bin. But what if you’re interested in applying for one of these card offers?

Before you take the leap, its best to know what impact it may have on your credit score and what it means when banks send you “pre-approval” letters enticing you to apply for their best offers.

We sat down with two experts — Michal Grinstein-Weiss, a professor at Washington University in St. Louis, and Mathieu Despard, faculty associate at Center for Social Development at Washington University in St. Louis — to get some clarity on credit card pre-approval letters and their impact on your credit score. Their combined responses are below.

Here’s our Q&A with Michal Grinstein-Weiss and Mathieu Despard on credit card pre-approval letters:

Michal Grinstein-Weiss

Q: Does applying for a credit card impact your credit score or are all credit card applications soft inquiries?

A: Credit card applications, like loan applications, result in hard inquiries, which remain on your credit report for two years.

Regarding credit score impact, 10% of FICO scores are determined by new credit. For FICO scores, the number of inquiries (like credit card applications) from the last 12 months are examined.

A single credit card application may have a very modest impact on your credit score, but multiple credit card applications within a short period of time will have a more pronounced, negative impact on your credit score, as this suggests increased risk.

In contrast, multiple hard inquiries for auto or mortgage loans within a short amount of time are usually treated as a single inquiry as the three credit reporting agencies recognize that consumers are “rate shopping.”

Q: What is the purpose of a credit card company extending pre-approval letters to potential customers?

Mathieu Despard

A: This is a marketing tactic of credit card companies. Pre-approvals or pre-qualifications are offers of credit and are extended based on a consumer’s basic credit information reported by the three credit reporting agencies (Equifax, Experian and TransUnion).

That means that the bank did their homework and completed a thorough check on a consumer’s borrowing history and credit scores to decide if they are qualified for pre-approval.

Q: Does the pre-approval process impact credit scores?

A: The pre-approval or pre-qualification does not constitute a hard inquiry as the consumer has taken no action — they are simply the recipient of an unsolicited offer — and thus has no impact on credit scores. However, once a consumer responds to a pre-approval or pre-qualification by completing an application for a credit card, initiating action to access new credit, this application constitutes a hard inquiry, which may affect one’s credit score.

We’d like to extend our sincere thanks to Michal Grinstein-Weiss and Mathieu Despard for taking to time to share their insights.

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