The truth about 'pre-approved' offers

By Marianne Curphey

"Personal pricing" is becoming a buzzword in business. Airlines and travel companies are looking at ways to tailor offers to you based on your internet searches and previous purchases. Credit card issuers do something similar -- based on past credit behaviour, they send "pre-approved" offers to you.

When you apply for credit, it leaves a record on your credit report. The lender you're applying to can see your application, of course, but so can other lenders down the road. These lenders may use the information on your credit report to offer you additional products -- such as a new credit card or a personal loan -- in the form of a "pre-approved" offer that invites you to formally apply. pre-approval-disappointment

But beware: you may not get the great deals advertised to you, for a variety of reasons. It helps to know how these deals work before applying.

Personalised offers can be helpful. According to National Debtline adviser Dennis Hussey, the majority of people told they have been "pre-approved" for a particular deal will be offered it, subject to identification and anti-fraud checks.

This helps applicants avoid blindly applying for cards they're not qualified for, which could lead you to apply for too many cards. Too many applications in a short period can count against you, as it can make you seem desperate for credit, which doesn't look good to other lenders. The pre-approved offer takes out some of the guesswork.

You may not get what you're offered
However, Andrew Johnson, money expert at the Money Advice Service, said being pre-approved for a credit card does not necessarily mean your credit application will be successful.

In fact, you won't know whether the application was successful or if you're even eligible for the offer that was marketed to you until you have fully completed the application process. "It is likely that you have been selected for mailing purposes based on a soft credit check (one that does not leave a footprint on your credit file) or limited information that was created some time ago," Johnson said in an emailed response to questions.

If banks are using outdated information based on your last credit application, and your financial circumstances have changed significantly since then, you may no longer be suitable to receive the deal advertised to you.

"Your application for another product may have been made ages ago," says Andrew Hagger, director of money information service MoneyComms. "When you send your latest up-to-date information and details, you might not meet their [requirements]."

Additionally, lenders are only required to give the advertised rate to at least 51% of successful applications, Johnson said. This means you may be offered less favourable terms than the deal you originally applied for. Reasons why you might be turned down include defaulting on an account, taking on more debt or missing payments on a credit account.

No pre-approved offers? You can still shop around
If you haven't been pre-approved for a credit card, and you want to know how much credit you might be able to get without making a full application, a "soft search" might be the answer, says credit expert David Black of DJB Research. A soft search allows you to check what credit products you're eligible for without affecting your score -- in other words, without making a full application that results in a hard pull on your score.

"A ‘soft' or ‘footprint search' is different from a full search," Black says. "It is not a full enquiry and won't be seen on your credit file, and the big advantage is that it lets you know what sort of credit you can get without affecting any future applications."

Some lenders, such as Barclaycard, allow you to make an initial search that won't show up on your file, he says, by using an eligibility checker. The tool is available on Barclaycard's website and allows you to see which Barclaycard credit cards you are most likely to be eligible for before you make a full application.

Regardless of whether you're receiving pre-approved offers or not, you should always do your research before applying for a card.

"If you are thinking of applying for a credit card, you should take time to compare any deals available before making a credit application," Johnson said. "Too many credit applications over a short period of time could adversely affect your credit score and could make it difficult when making further credit applications." It's wise to apply sparingly and only for cards you want and are likely to get.

See related: How 'no-consequences' credit can lure you to debt, How do banks benefit from long balance transfer offers?, Risks of having more cards than you need

Updated: 17 February 2017