Inquiries for pre-approved offers do not affect your credit score unless you follow through and apply for the credit card or loan, and possibly not even then. Here is what you need to know.
Key Takeaways
- When a bank or other lender requests your credit report while searching for new customers, that's known as a soft inquiry.
- A soft inquiry has no impact on your credit score.
- If the lender likes what it sees in your credit report, it may send you a pre-approved offer.
- A pre-approved offer doesn't mean the lender will automatically offer you credit, just that it believes you might be a good candidate for it.
- You will still need to fill out an application and supply other information, such as your income.
- When you apply for credit, that will result in a hard inquiry, which can affect your credit score, although only briefly and in a minor way.
How Pre-Approved Offers Work
If you read the fine print on a pre-approved credit offer, you'll find it's not really "pre-approved" as most of us would understand the term. Anyone who receives an offer must still fill out an application before being granted credit. Pre-approval simply means that the lender has identified you as a good prospect based on information in your credit report. The lender will want more information, such as your income, which is not included in credit reports.
Pre-approved offers are sometimes referred to more accurately as "prescreened."
The Two Types of Credit Inquiries
When a lender requests your credit report from a credit bureau, that is known as an inquiry.
There are two types of credit inquiries, referred to in the lending business as soft inquiries and hard inquiries. Only a hard inquiry is an indication that a lender is actively considering extending credit to you or has just done so, based on your request. Soft inquiries are also known as soft credit checks or soft pulls, hard inquiries as hard credit checks or hard pulls.
Soft Inquiries
When lenders request consumers' credit reports for review before sending them pre-approved offers, that's counted as a soft inquiry. Other soft inquiries occur when a person's current lender pulls a credit report for an account review, when a debt collector checks a credit report for recent activity, or if an employer checks it when you apply for a job.
When you request your own credit report, that also counts as a soft inquiry.
Only you can see soft inquiries on your credit report. Other lenders cannot see them.
If you fill out an application that accompanies a pre-approved offer, the lender will sometimes use the soft inquiry that has already been pulled to make its decision, or it may request a new credit report, resulting in a hard inquiry.
Note
Employers cannot request your credit report without your written permission. In some jurisdictions, it is illegal for them to even ask for your permission.
Hard Inquiries
A hard inquiry occurs when someone applies for a credit card or loan, such as a mortgage. It is an indication that the person is considering taking on additional debt and has taken a step toward doing so. Potential lenders can see hard inquiries on your credit report.
Hard inquiries can affect your credit score, but usually only if there are a number of them. In any case, the impact of a hard inquiry on your score is very low compared with other factors such as your bill payment history and credit utilization ratio.
Hard inquiries on your credit report might be a concern if, say, you're about to submit a mortgage application and have recently applied for a bunch of credit cards. The lender might question whether you are about to take on substantial additional debt or whether you're in some sort of financial difficulty. Lenders will sometimes deny a credit application because an applicant has too many recent inquiries.
Multiple hard inquiries for a mortgage or car loan in a limited time frame can be an exception, however. They are lumped together as one inquiry because lenders understand that the person was probably just shopping around for a single loan.
Lenders may also deny a credit application if a person's income appears inadequate to cover all of their monthly debt payments. After the applicant provides their income information, lenders will often do a calculation called a debt-to-income (DTI) ratio. A DTI ratio compares the person's monthly debt payments to their gross monthly income. While lenders can differ in what they consider an acceptable DTI, they generally like to see a ratio of 36% or less.
Hard inquiries automatically fall off a credit report after two years and cease to have any effect on credit scores after one year.
Even hard inquiries, which are initiated when you apply for credit, don't have much effect on your credit score—unless you have a lot of them in a short period of time.
How to Opt Out of Pre-Approved Offers
If you prefer not to receive pre-approved credit card offers, federal law allows you to opt out for five years at a time. To do that, you can either visit www.optoutprescreen.com or call 888-5-OPT-OUT (888-567-8688). You can also opt out of pre-approved insurance offers.
It's also possible to opt out permanently, starting at the website above. After you make your request online, you need to fill out, sign, and return a permanent opt-out election form.
Where Do Credit Bureaus Get Their Information on You?
Credit bureaus get the information that they use to compile credit reports from your creditors, such as credit card companies and mortgage or auto lenders. Not every creditor reports to all three major credit bureaus (and some report to none of them), so your credit reports can differ from one bureau to another.
How Can You See Your Credit Reports?
Under federal law, you're entitled to a free copy of your credit report from each of the three major credit bureaus at least once a year, and more often in some circ*mstances. The official website for that purpose is AnnualCreditReport.com.
How Can You Find Out Your Credit Score?
Your credit score is not part of your credit reports and must be requested separately. While you can purchase your credit score, you may be able to obtain it free of charge from your bank or credit card issuer. There are also online sources for free credit scores.
The Bottom Line
Before lenders will offer you a pre-approved credit card or loan, they'll request your credit report from a credit bureau. That is a soft credit inquiry, and it won't have any impact on your credit score. If you go ahead and apply based on the offer, however, that may affect your score, but only in a small way.
