Initial credit preapproval has no effect on your credit score because you did not initiate the process. A bank or other lender bought your information from the credit bureaus and extended the offer based on its prescreening. You do cause some credit score impact if you choose to accept the offer because the lender will then do a credit check on you.
Definition
When a lender orders a list of consumers meeting certain criteria it determines which people qualify for preapproval, Fox Business writer Jeremy Simon explains. The TransUnion, Equifax and Experian credit bureaus sell such lists so credit providers can target individuals. Preapproval is no guarantee of acceptance, but you are likely to get the credit card or loan as long as your financial situation did not change significantly in a negative way, such as a bankruptcy or bad debt lawsuit, within the past month or two.
Considerations
Credit scorers draw data from your credit reports, but they do not consider everything. The initial preapproval process generates a soft inquiry, which does not count in scoring formulas because it does not represent an actual credit application. You change that if you redeem the offer, which gives the lender permission to do a hard inquiry. This more-detailed check of your credit report causes a dip in your score because you are actually seeking a new account.
Credit Score Impact
Accepted preapproved credit offers have minimal impact on your credit score unless you recently made a flurry of applications for other accounts. Numerous hard inquiries within a short time are bad for your score, the MyFICO scoring website warns, because more than six boost your likelihood of filing bankruptcy by eight times. A single inquiry for redeeming preapproved offers drops your score by no more than five points. You can safely accept preapproved credit if you were recently rate-shopping for a car, home or other big-ticket item, even if you filled out several applications, because scorers consider them all as a single inquiry.
Warning
Preapproved credit can devastate your credit score if it leads to identity theft. Criminals fish discarded preapprovals out of trash cans and steal them from mailboxes. They get credit cards or loan checks in your name, charge up the card or keep the money and never make a payment. Your credit reports reflect the bad debt until you realize that you were victimized and report the problem. You can stop preapproved-credit offers through OptoutPrescreen.com, the Federal Trade Commission advises, which eliminates the potential theft problem.
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