Does Getting Pre-Approved Affect Your Credit Score?

Pre-approval offers often are the primary source of junk mail. Whether the company in question is offering you a new credit card, auto loan or personal loan, you have probably tossed out hundreds of these offers in your lifetime. Lenders typically base your approval for a loan or credit card on your credit score, and credit inquiries can have a negative impact on your scores. Fortunately, though these pre-approval offers may annoy you, they dont hurt your credit.

How Pre-Approval Works

Companies that want to send out pre-approval offers as a marketing tactic contact the credit bureaus with their basic approval criteria. The credit bureaus then sell these companies a list of consumers whose credit scores meet each companys lending requirements.

The Fair Credit Reporting Act prohibits any individual or business from pulling and reviewing your credit for a loan or line or credit unless you actually applied for the service. Thus, lenders who send you pre-approved credit and loan offers never see your credit report and your credit score remains unaffected.

Credit Inquiries

Certain types of credit inquiries lenders conduct can hurt your credit scores. Known as hard pulls, credit checks for financial services, such as a loan, drop your credit by several points each time they occur. Receiving a pre-approved credit or loan offer doesnt mean you wont have to undergo a credit check should you decide to take advantage of the proffered service. When you formally apply for the service, the company will conduct a credit check and your credit score will drop but usually not more than five points.

Mortgage Pre-approval

A mortgage pre-approval differs from the pre-approval offers you get in the mail in that the pre-approval involves a hard credit inquiry and impacts your score. Mortgage lenders generally conduct a pre-approval before asking you to fill out a formal mortgage application. This saves you the trouble of gathering the extensive documentation required for a mortgage application package if you do not meet the lenders basic credit requirements. It also allows you to compare the interest rate you qualify for with other lenders rates.

The credit impact of mortgage pre-approval differs from other hard inquiries in that the FICO scoring formula considers all rate-shopping inquiries as one inquiry allowing you to shop around for a new mortgage without destroying your credit score from repeated hard inquiries.

Protecting Your Information

While whether or not to get pre-approved for a mortgage is your own decision, you also have control over whether the credit bureaus sell your information to third parties for marketing purposes. If you no longer wish to have your credit information sold to credit card companies, title loan providers and others, you have the right to opt-out of the service by notifying the credit bureaus via mail that you no longer wish to have your information sold to marketers. You can also opt out online by visiting OptOutPrescreen.com and filling out and submitting the online opt-out form. It can take up to six weeks to stop receiving pre-approval offers after requesting that the credit bureaus stop selling your information.