I just received an e-mail from ICICI Bank saying I’m eligible for a pre-approved personal loan worth Rs.10 lakh. Sometime or the other you must also have seen your mailbox flooded with loads of invitations to apply for a credit card.
Most of these will claim that you have been pre-approved, pre-screened and/or pre-qualified for a personal loan, credit card. It will seem to be a very good deal. But before you fill out the application form enthusiastically to get a loan fast, there are certain things which you should understand first.
Here is an ‘unbiased’ look at all these credit card offers and why all these are not that great as it seem.
Does pre-approved means you are really approved?
The term ‘pre-qualified’ may give out the notion that you have been screened and approved already but that may not be the case actually. This is only a marketing language and it never means that you have been actually pre-approved. Check out Investopedia’s definition of “pre-approved“.
The invitation only indicates that you have been cleared to apply for the card only. There is no guarantee that you will get the card as the card issuer will assess your ability to pay back before giving the final nod to the card.
The terms in the offer may not be suitable for you.
The sad news is that the interest rate and the credit line advertised in the offer may not be suitable for you at all. These offers are sent out to millions of people even though they claim that the offer was made especially for you.
Usually it claims that you will get a particular credit card at a lower interest rate, although when you apply and actually get the card in your hand, you will find that the chargeable interest rate is much higher.
Why you have been chosen to receive pre-approved offers?
Why do people receive these kinds of offers in the mail? Any credit card mailer that informs you that you are pre-approved or pre-selected for a credit card or loan is actually known as an ‘Invitation to Apply’ (ITA) offers.
This means that the bank has only done a background check on you and obtained information like credit score, personal information and history of borrowing. If the offer does not have a ‘pre’ assigned to it then it is simply an ITA which basically means that the credit file has not been screened at all.
The pre-screening process usually works in 2 ways. The bank will decide on a minimum credit score and then ask the credit bureau for a complete list of people that meets the criteria. Or the bank may provide a list to the credit bureau and ask them to identify the people who meet the criteria.
Since the banks receive a lot of information about you in detail, it is possible for them to announce pre-screened offer for you. They will know the number of credit cards you have and whether you have declared bankruptcy in the last financial year and so on.
A majority of these offers are based on your relationship with other businesses. If you are a frequent flier on Air India, you may receive an offer for the Air India co-branded card from a bank or if you shop frequently at a shopping mall then you can opt for such co-branded credit cards.
Do ITAs’ hurt your credit score?
Many people have a notion that since lenders get the credit information before sending the ITA offers as a result of which their credit takes a huge hit. But the good news is that most of these are soft inquiry and will have no effect on your credit score.
However, the scenario will change if you do fill out the application form. When you respond to a pre-approved offer, the lender will again profile your credit history and this 2nd review is a hard pull and may hurt your credit score seriously. The credit inquiries may also reflect in your file for at least a year.
This is the reason it is very important to avoid applying for multiple ITA at one go. Each time you fill out an application for credit, the score will nosedive by a few points. This becomes very important when you are thinking of taking out a Housing Loan as a difference of a few points on your credit score will decide the final interest rate offered to you.
The correct way to find credit cards
If you are willing to apply for a credit card then you need not rely on ITAs or the marketing hype. You can search the internet for any ongoing offers or use the different tools provided by various banks to check the eligibility of different types of credit cards.
This will save your time as you don’t have to apply for those cards for which you are not even eligible. In most cases you will get sign-up bonuses for applying for a credit card online.
As for the pre-approved and pre-qualified cards, you can just shred those letters and throw them away. There is no guarantee that you will get the best offer through the ITAs.
How to opt out of these unsolicited pre-approved, pre-qualified offers?
The credit card offers that you receive in the mail are very irritating and can pose security issues. It also gives certain people an opportunity to steal these mails and your identity.
There is an option to opt out of these unsolicited offers. You can call up the toll free number given in the mailers and ask them to remove your name from the mailing list. Or you can directly send an email to the respective banks informing them that you are not interested in these offers and they should not send you mails in the future.
The other option is to give a written request to the credit bureau so that your information is not shared with any agency or any banks. Never let anyone disturb you on a sustained basis. It can get really make you lose your cool.
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