This post originally appeared October 2, 2014, on CreditCards.com as “Prescreened card offers don’t impact your credit score
By Barry Paperno
Dear Speaking of Credit,
Does a “prequalified credit card” offer mean that my credit has already been pulled? Or if I accept the offer, will my credit get pulled again? Please advise. — Gloria
The quick and easy answer to both of your questions is yes, since your credit is, in fact, accessed before the prequalified (also known as “prescreened“) offer being made, and again after acceptance. But, to do your questions justice, I will also discuss the vastly different ways in which your credit report is accessed during the two main stages of the process — offer and acceptance.
The main distinction between these situations is that, at the time a prequalified credit offer is made, you have neither applied for credit nor are you likely to have an existing business relationship with the creditor. In the acceptance phase of the process, while it may not seem like it, you are essentially applying for new credit.
The Fair Credit Reporting Act (FCRA), the law that gives each of us the right to see our own credit reports and dispute any errors, also spells out the conditions under which a company may access your credit reports, and calls this set of requirements “permissible purpose.” As a side note, and as you’re about to see, obtaining the consumer’s express permission isn’t one of the permissible purposes.
When you are applying for credit, or if there is already a business relationship between you and the creditor, the company has permissible purpose to access your credit report or score when:
- You accept a prequalified, preapproved or prescreened offer.
- You have applied for new credit or an increased credit line on an existing account.
- A creditor periodically reviews your existing account (account review).
- A company takes collection action on a debt you owe.
- You initiate a business transaction and there is a “legitimate business need” for your credit report.
Starting with your (easier) second question, and as the first bullet point above points out, your credit will get pulled if you accept the offer.
As to your first question, did you notice that a potential creditor looking to make you a prequalified offer it is not one of the permissible purpose situations listed above? This is because, when intending to make such an offer, a potential creditor only has what’s considered “limited use” permissible purpose to check your credit.
Under the limited use condition of permissible purpose, instead of actually obtaining your credit report or score, a potential creditor submits a set of credit requirements to a credit bureau for the purpose of obtaining a list of consumers to whom prequalified card offers will be made. The credit bureau then searches its files and provides a list of consumers meeting the criteria. These requirements typically include, for example, your credit score, how much you owe on different types of credit, how long you’ve been using credit, the number of late payments, and whether you have ever filed bankruptcy.
What makes this process quite different from the familiar one of applying for credit and having your actual credit report reviewed is that only the list of consumers — names and addresses — meeting the criteria is provided to the creditor. No credit information is shared by the credit bureau pertaining to those who either meet or don’t meet the prequalification requirements.
The FCRA also requires that any time your credit is accessed for any reason an inquiry is posted to your credit report and remains for two years.
Inquiries resulting from applications for new credit, requests for higher credit lines, or actions considered to be “initiating a business transaction” (for example, test driving a car, which automatically allows a car dealer to check your credit) appear on credit reports provided to creditors and consumers. These “hard” inquiries are considered in credit score calculations, and each such hard inquiry subtracts a few points from your credit score, but only for a year.
Inquiries generated by prequalification offers, account review, and consumers requesting their own reports or scores, also appear on credit reports, but are only seen by consumers on reports they obtain directly from the credit bureaus. Such “soft” inquiries are never included in credit score calculations.
And just so you know, since you asked about credit pulls on card prequalification offers, I have limited this discussion to just that. Be aware, however, that there are other similar situations in which your credit may be accessed, such as for insurance, employment, utilities and property rental, that may have their own Fair Credit Reporting Act-permissible purpose requirements. I’ll leave that part of the discussion for another time.
Hope this helps. Thanks for writing!
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