I may as well preface by saying I’m not asking for any financial advice or for deep personal reasons.
I get a ton of “preapproved” credit offers. I assume most people do. When I searched the forum for “preapproved”, someone said his credit was crap and he gets them daily. Which makes me ask – how “approved” are they? I know they add a cavaet saying they’ll need to confirm your information before they send you a card, loan, mortgage, etc but is there any actual pre-filtering process at all or do they just mass-mail them to everyone and assume they’ll just send “Hell no” notices to the chumps who thought “Wow, I’m pre-approved!”?
Some companies prey on people with less than perfect credit, and they get offers, too. The person is probably the type that pays, but pays alot of interest and creates good margins for the lender, with a risk of default the lender feels is acceptable, since the lender is shopping for consumers in the sub-prime market.
Most pre-approved lists are lists of consumers who have, at the time the list was generates, criteria that meet the requirements for the credit card offer, the equitly line or whatever is being offered. Minor changes in the lag between the generation of the list and the person’s actual credit would result in a pre-approved offer leading to a declination of credit.
Sometime, the declination of credit might be based on additional information gleaned from the actuall application/process of activiation. For example, a pre-approved equitly line might be dependent upon thr am’t borrow and a certain income or ability to verify addresses, etc. Failures in any area might lead to a declination of credit, even though it started out as pre-approved.
This hardy covers all the scenarios, but should give you a flavor for how it works.
Lets say one might see a guy in a BMW and pre-approve him to receive a free BMW certified oil change. When he pulls into the shop, one sees he has an aftermarket tuned engine and so is declined to him the free BMW oil change. Sure, he was pre-approved, but only based on a non-scratch-the-surface look.
OK, there are exceptions, but if they’re like the “pre-approved” offers I get, they’re not pre-approved at all, at least in the way you might be thinking. If you read the fine print carefully, you’ll usually see something about your being “pre-approved for this offer. Acceptance is determined by your eligibility.” You were just approved to get this junk mail, which means that they’re still going to run a credit report on you when you apply.
In other words, nine times out of ten it’s just an advertisement trying to get you to apply.
Under the Fair Credit Reporting Act, these are known as “firm offers of credit.” Certain conditions apply to them, but as you can see, there’s plenty of wiggle room.
Credit card companies buy lists from the credit bureaus. Because they can’t pull your actual file, they pay for the bureaus to provide a list of names/addresses of people who fit their pre-approval criteria (income level, charge-offs, FICO, on-time pays, etc.). Or cc companies buy lists of contacts who meet more general demographic criteria. Zip code is major one - if you lived in several different zip codes as I have, it’s fascinating to see what kinds of rates you get offered depending on what area of town you live in. But these criteria could also be what kind of magazines you subscribe to, what associations you belong to, etc. - IOW your basic list broker type info.
So, the cc companies are pre-approving you based on what what you appear to be, but won’t actually give you credit until they review your credit history - which you allow them to do by applying.
They do this instead of a buck-shot mailing (except for Capitol One, I swear to god) because by tailoring their list, they hope to actually get more people who want the card and that they can actually extend credit to. Pre-approval means nothing more than you’ve been “profiled” per se by the cc company.
(This is based on my several years of experience working for one of the largest credit card issuers in the country.)
In several states (notably, the ones from which banks issue credit cards), there is no maximum interest rate. That is not to say that credit cards are charging reasonable rates, but whatever rate they charge is set by the market, not by the state.
Last year I got a pre-approved when I had my CREDIT FILE BLOCKED!
They claimed to have reviewed my credit/gotten me on a list of appropriate debtors from Transunion, but Transunion said they never even gave them my info.