Maintaining your credit score at the highest possible level is important. You need a high credit score to get credit cards, loans and other accounts. Your score might also be used by prospective employers and insurers. Because of this, you should be aware of how certain actions, such as pre-approvals, can affect your credit score and how to minimize their impact.
Effects
According to FICO, which created the formula to calculate most credit scores, inquiries by creditors can have a negative effect on your score. They are one small factor in determining your score. The amount and age of your accounts and your payment history are the most important factors. However, inquiries can bring your score down, particularly if there is a high number of inquiries within a short period of time. Some types of pre-approved credit can cause an inquiry to appear, so it's important to know which ones.
Credit Card Pre-Approval
A credit card pre-approval does not affect your credit score unless you accept the offer and open an account. Credit card companies purchase information from credit bureaus to pre-screen consumers for certain offers. These purchases do not show up on your credit report as an inquiry, so they do not affect your credit score. If you don't accept the offers, they will never be reflected on your credit report. If you accept an offer, the credit card account will affect your credit score the same way as your other accounts, regardless of that fact that you were pre-approved.
Home Loan Pre-Approval
Getting pre-approved for a home loan might affect your credit score, depending on the information used by the lender for the pre-approval. Some mortgage companies provide offers based solely on information you give, such as bank records and pay stubs. This does not affect your credit score. Some companies will pull a copy of your credit report. If they make an inquiry to the credit bureaus, that can affect your credit score the same way as any other inquiry.
Car Loan Pre-Approval
The effects of a pre-approved car loan on your credit score depends on how the lender determines pre-approval. If you are a long-time customer of a bank or credit union, the company might not pull your credit report before giving approval. Your credit score is not affected because there is no inquiry, If you are dealing with a lender that reviews credit reports, the inquiry will show up and affect your score.
Opting Out
Even though pre-approved credit card offers do not impact your credit score unless you accept the offer, you might wish to opt out of receiving these offers. This can be done through OptOutPrescreen.com or by postal mail. If you do this through the website, it will be in effect for five years. You can opt out permanently by printing out a form from the website and submitting it via postal mail. This process does not affect pre-approvals you request, such as home or car loans. It stops only unsolicited pre-approved credit card offers.
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