Did you know that when banks make preapproved credit card offers that most consumers have no inquiry logged at all? But then a significant portion of consumers have soft inquiries logged, and then less than 1% have a hard inquiry logged.
Soft inquiries do not impact your risk score, but hard inquiries do. But which category do you fall into? If you are looking for preapproved credit cards with soft inquiries, you may find yourself in the 1% that have hard inquiries logged instead.
- Greater than 50% have no inquiries
- Less than 50% have soft inquiries logged
- Less than 1% with hard inquiries logged
Preapproved Credit Cards with No Inquiries
The majority of consumers involved in preapproved credit card offers (greater than 50% on average) have no inquiries logged at all. Inquiries are logged when a bank or lender reviews the consumer report of a prospective borrower, or an existing customer. During the preapproval process protected information is used, but consumer reports are not reviewed during the initial stages.
So how can banks use protected information without pulling a consumer report? The answer lies at the core of how preapproved credit card offers work .
Definition of Consumer Report
There are many ways to define a consumer report. The definition of most interest to preapprovals and the logging of inquiries involve the connection between consumer identifying information and protected information. A consumer report is created when the bank or lender has access to both at the same time.
If the lender has access to the protected information, but is not able to connect the information to the consumer identifying information, then there is no consumer report.
Separation of Information
During the prescreening process identifying information is never visible to lenders. The bureaus process the lenders criteria against a file of consumer records stripped of identifying information. Most consumers fail the criteria and their identifying information never leaves the bureaus’ control.
Since there is not point at which the criteria match to the consumer identifying information, the majority involved in this stage of a prescreen program have no inquiries logged.
Preapproved Credit Cards with Soft Inquiries
In the typical prescreen process a minority (less than 50% of consumers) pass the criteria, and 50% fail the criteria due to poor credit. The bureau outputs a file containing the consumer identifying information so the bank can send a preapproved credit card offer. Since
the bank communicated the criteria, and has possession of the identifying information a consumer report has now been formed. Since a consumer report has been created an inquiry needs to be logged.
Not Consumer Initiated
Every consumer who receives preapproved credit card offers has a soft inquiry logged. Soft inquiries are logged to let consumers know which lenders have been reviewing their protected information. Soft inquiries are logged whenever the transaction is initiated by the lender, rather than the consumers. In this case the bank or card company initiated the transaction.
Banks often use a process similar to prescreening on existing accounts. Batch files are regularly reviewed and output to banks to help monitor existing account relationships. Banks may proactively increase card limits, or defensively decrease card limits for consumers showing certain behaviors.
When a consumer reviews his or her own consumer report, both hard and soft inquiries are displayed. When lenders review consumer reports only the hard inquiries display, and are used in calculating risk scores.
Preapproved Credit Card Offers with Hard Inquiries
Less than 1% of preapproved credit card offers will have hard inquiries logged because less than 1% of people respond. Ninety nine percent of these offers go straight into the trash bin without a hard inquiry, and the only remaining evidence is the soft inquiry logged on their consumer report.
However the 1% who does respond is treated differently. They are participating in a lending transaction.
Preapproval Time Lapses
The FTC prescreening rules require that lenders make a firm offer, but allow banks to double check for changes. In the typical prescreen a period of time elapses between when the bureau first reviews the consumer file, and the consumer responds to the offer. The offer is sent from the mail house, goes through the postal system, and may sit on the consumer’s countertop for weeks. Much can change in a person’s life during this time.
Banks routinely pull what is referred to as a “back-end prescreen report” for most preapproved credit card responders. The banks want to verify that nothing significant has changed. If the consumer still meets the original criteria, the card is approved. If the report shows a significant change that would have disqualified the person from being preapproved, the account can be declined .
Hard inquiries are usually logged for back-end pre-screen consumer reports. The consumer initiates the transaction by responding to the offer to establish a new account relationship.