What Is a Firm Offer of Credit and Why Does It Matter?

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Prequalified and preappoved. You've likely seen these terms in marketing solicitations for credit cards and loans. But are these marketing promotions making you a firm offer of credit? Are you guaranteed an approval for the terms displayed in the cleverly folded mail piece, catchy email or intriguing digital ad? Not always.

The terms you are ultimately offered will depend on whether the credit offer from the lender is preappoved or prequalified.

Here's an overview of how credit marketing works for both prequalified and preapproved loans and credit cards, and when lenders are required to provide a firm offer of credit.

Prequalified vs. Preapproved

Getting prequalified and preapproved are two different processes, one initiated by you and the other initiated by a lender.

Prequalification is when you (the consumer) agree to provide your credit information to a lender as you shop for credit offers, such as a credit card or loan. Prequalification does not require a firm offer of credit.

Preapproval is when a lender "prescreens" you and independently determines whether you meet their requirements for credit. If you do, the lender will send you a preapproved offer. If you decide you want to formally apply for and accept the loan or credit card from the lender, the terms must match the original offer—this is the firm offer of credit.

For a preapproval, lenders use a behind-the-scenes prescreening process to determine if they would like to extend a credit offer based on your credit profile, whether you are an existing customer, where you live and other factors. Lenders also determine what kinds of credit offers, such as a cash back credit card or low interest credit card, may be most appealing to you. All of these offers are governed by the Fair Credit Reporting Act (FCRA).

Find the best credit cards in Experian CreditMatch.

Why Does a Firm Offer of Credit Matter?

Knowing a lender's obligations under the FCRA can help you determine whether a credit offer is truly worth applying for. Under the law, lenders that initiate a prescreen are required to:

  • Provide notices to consumers who are offered credit based on the lender's preapproved list.
  • Maintain records of the prescreened lists.
  • Allow consumers to opt out of prescreened offers.
  • Extend firm offers of credit to consumers who pass the lender's prescreening.

What this means for you is that unless your credit profile changes dramatically from the time the lender reviews it and the time you apply, the lender is required to extend the firm offer of credit outlined in the offer.

How Do Preapproval and Prequalification Offers Impact My Credit Score?

Both prequalification and preapproval will show up on your credit report as soft inquiries, which do not impact your credit scores.

Once you formally submit an application or accept a new line of credit, a hard inquiry is made on your credit file, which is added to your credit report and has an impact to your credit scores. The impact is minimal unless you are applying for multiple accounts all at once.

Typically, a hard inquiry subtracts a few points from your credit scores, but usually only for a year, depending on the credit scoring model. You can learn more about the difference between hard and soft inquiries here.

Find the best personal loans in Experian CreditMatch.

How to Shop for Credit Cards and Loans

Here are three ways to shop for a credit card or loan:

  1. Use a credit card or personal loan comparison tool to see which cards or loans you are more likely to get approved for and how the cards and loans stack up with interest rates, fees, rewards, cash back and other options.
  2. Respond to a lender's credit card or loan offer. You have met their initial prescreen requirements, so if the offer meets your needs, your credit profile has not changed and your income can be verified, you will be approved for the card.
  3. Chat with your bank about the credit products they offer that you could qualify for.

Read more about the 6 steps to finding the best credit card.

Can You Opt Out of Credit Card and Loan Offers?

Yes, you can opt out of unsolicited credit offers for a five-year period or permanently by calling the toll-free number 1-888-5-OPT-OUT (1-888-567-8688) or visiting www.optoutprescreen.com.

Choosing to opt out of this list should stop you from receiving any prescreened offers. If you decide to opt out, you may need to provide your Social Security number, date of birth and your home telephone number. If you change your mind, you can call the same number or site and request to opt back in.