Now that the Great Recession is a fading memory, credit card issuers are ramping up their efforts to snag more consumers. There’s a good chance that you’ve seen an increase in credit card offers in your mailbox, all of them proclaiming that you’re “pre-qualified” for a card.
Before you get too excited, it’s important to understand what credit card pre-qualification means. If you are looking for the best rate advertised, or a high credit limit, you might be unpleasantly surprised.
How Do You Get Pre-Qualified?
You know that information about your credit habits are reported to the credit bureaus. What you may not know is that others can access that information -- for a price. The credit reporting agencies allow access to data, and credit card issuers can then target potential customers that fit a certain broad profile.
Your pre-qualification simply means that you fit certain criteria, and that you are likely to qualify for a credit card. However, it’s important to realize that pre-qualification doesn’t guarantee an interest rate or a credit limit. It doesn’t even guarantee that you end up with the “platinum” version of the credit card.
Simply put, your pre-qualification is nothing more than a marketing ploy to make it sound as though you have been individually selected for a credit card. Once you apply, the story changes a bit.
The Credit Card Terms You End Up With
A credit card offer amounts to a marketing effort. If you look at all the information included, you will see that there are really three or four different possible interest rates, although the credit issuer plays up the lowest one. Additionally, it becomes clear that your credit limit might not be as high as listed on the front of the letter; instead, your income and credit score might mean a lower credit line. You might also find that your credit isn’t quite good enough for the platinum card, and you might be offered a gold card instead.
The information provided about you from the credit bureaus is fairly non-specific. Marketers don’t have your exact credit score and report, and they don’t know your income until you provide it on your credit card application. Once you fill in the specifics, the credit issuer can use its own algorithms to determine what terms you are eligible for.
A pre-qualification letter can provide you with the chance to apply for a credit card you have been interested in, and bring a good deal to your attention. However, it’s vital that you don’t fall into the trap of assuming that the “best possible” terms advertised are a sure thing.
