Pre-approved Unsecured Credit Card: How it works

By Neil Farman on November 22nd, 2006

When you apply for an unsecured credit card, you need to have a pre-approval, which is based on known credit, or data provided by you during the application. So, when you received an offer for a pre-approved unsecured credit card, your credit report review can play an important role because this is required to make sure that there have not been any changes that may annul the preapproved credit card offer. People who have bad credit or history of bankruptcy may not be eligible to be approved for reward, high credit limit, or rebate unsecured credit cards, because credit issuers always evaluate and try to avoid potential risks.

Important Factors

There are certain factors that credit card issuers look into before delivering pre-approved credit card offers to customers, such as

1. If similar credit cards has already been in use
2. Income to debt ratio
3. Specific requirements for credit card approval
4. Known past credit history
5. The chances of your reaction to the pre-approved credit card offer
6. Balances of existing credit cards

Pre-approved Credit Cards, Credit Report, and Credit Check:

Before issuing pre-approved unsecured credit card offers, the card issuer may request for a list of consumers from any one of the credit bureaus. All the listed consumers should have credit reports that qualify the card issuer’s requirements before they are offered the pre-approved credit card. List of consumers can also be acquired by the issuer/bank for other sources such as marketing database companies, and submitted to the credit bureau, which will send back a similar subgroup for the “pre-approved” offers. So, credit reports bearing inquiries that are assigned as “promotional” means that the owner’s file has been checked for the “pre-approved” list, and may or may not qualify to receive a pre-approved credit card offer. The above-mentioned inquiry cannot harm your FICO credit score because it was not initiated by your request, nor seen by other prospective creditors.

When you submit your application for a pre-approved unsecured credit card, it is sent to a processing center, and a credit check, based on the data you sent, is performed by a computer system. Final approval or rejection depends on this credit check. Any significant changes, such as total available credit and balance-to-limit ratio, since the original sweep on your credit file; and information such as income, are examined, which can result in an approval or rejection.

What you Need to Know when Receiving Pre-approved Credit Card Offer:

1. Many pre-approved unsecured credit cards are only preliminary, and not 100% approved. Any additional research by the card issuer can result in a rejection.

2. The low interest rate accompanying pre-approved unsecured credit cards may only be an Introductory Rate, which can increase after the introductory period. In addition, it may only apply to purchases, and not to cash advances or balance transfers.

3. Watch out for the fees that accompany certain pre-approved unsecured credit cards, such as balance transfer fees, annual fees, and cash advance fees.

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