What does it mean to be pre-approved for a credit card?

Receiving a pre-approved credit card offer can feel almost like a gift — a gift of credit, that is.

But what exactly is a pre-approved credit card offer? Are you guaranteed to get the credit card if you apply? And what impact does a pre-approved credit card offer have on your credit score?

The word “pre-approved" can be quite confusing. We're here to help with this guide to everything you need to know about credit card pre-approvals.

When you receive a pre-approved credit card offer, it means the credit card issuer has prescreened you based on certain criteria, such as your credit history and financial information. As a result of this prescreening, they've determined that you'd be a good candidate for their credit card.

Depending on the lender, however, you may still need to apply for the credit card. With certain lenders, the application process for a pre-approved credit card is the same as for any credit card. If this is the case, you'd need to fill out the credit card application with the information the lender requires, and then they'll do a credit check pending approval.

While a pre-approved credit card offer speaks to your creditworthiness, it still requires action on your part: You'll need to decide if you want to take the lender up on their offer. 

Credit card pre-approval doesn't necessarily mean you're guaranteed to be approved. But with some financial institutions it often means you will be approved, unless you've become bankrupt in the interim. Other lenders, on the other hand, might take into consideration any significant changes to your credit history since your pre-approval.

Even if the lender reached out to you first, they can turn around and deny your application. While it might seem like a pre-approved credit card application won't be declined, it all depends on a lender's pre-approval policies. Some lenders, for example, won't decline a pre-approved credit card other than in the event of bankruptcy, but others may have more stringent policies. If they do, you could still be declined after a pre-approval credit card offer.

The following are examples of financial changes that a lender with more stringent policies might consider:

• Updated information. Transunion and Equifax, Canada's two main credit reporting agencies, compile individuals' credit files based on information they collect from various sources, including creditors. If your credit report was updated with new information in the time between the lender's prescreening and your credit card application, you might no longer meet the lender's criteria.
• Recent financial mismanagement. Your financial life doesn't stay static, so you might have made some financial decisions recently that have a negative impact on your credit history. For example, if you've applied for several credit products since you were prescreened, these will now show up as separate credit checks on your credit report. The lender could consider this a red flag.
• Major financial changes. Some credit card issuers may take income or other eligibility requirements into consideration. If they do, big changes in your life that affect your finances could potentially lead to your application being declined despite your pre-approval offer. These might include a change to your employment status or income (for example, if you were laid off).

One worry people often have when they receive a pre-approved credit card offer is the impact on their credit score. After all, the lender had to check your credit information when they pre-screened you. Doesn't this cause your credit score to drop?

Whenever you apply for credit, the lender or financial institution does a credit check, which shows up as a "hard" check or inquiry on your credit report. Hard inquiries have the effect of temporarily lowering your credit score — and if you get too many of them, it's not just your credit score that's affected. Lenders often consider multiple or frequent credit applications to be a sign that a potential borrower may be dealing with financial issues.

But a pre-approval is a "soft" credit check. Soft inquiries are inquiries that are non-credit-related. Unlike a hard inquiry, soft checks are only visible to you, which means lenders and creditors can't see this information.

Examples¹ of soft checks include:

• account reviews (pre-approvals fall into this category)
• your own inquiries
• identity verification
• insurance underwriting

A recent study found that 74% of Canadians frequently pay using their credit cards — 43% in-store and 65% online.² The pandemic has had an impact, too: 31% say they now use their credit cards more.³

Using credit cards more frequently can be either positive or negative though — for example, as we explore below, if you're not paying off your balance in full each month, using your credit cards more often can have a detrimental impact on your financial health.

Receiving a pre-approved credit card offer indicates the credit card company considers you creditworthy. But should you accept the offer?

There are several benefits of saying yes to that pre-approved offer, including:

Despite the benefits, there are reasons why it might be good to say no to your pre-approved offer. These reasons include:

Getting a pre-approved credit card isn't a guarantee that you'll be approved for the card if you decide to accept the offer. What it does mean is that the lender feels you're a good fit for their card, based on your credit information, and you're likely to get the card, although some lenders may require a credit check to confirm its initial assessment. Whether or not you accept the offer should be based on an understanding your current financial situation and the pros and cons of applying for the pre-approved credit card offer.