What Is a Firm Offer of Credit?

How Does a Firm Offer of Credit Work?

Lenders can use different methods to attract new customers. One is by creating lists of prescreened consumers who meet their criteria for a loan or credit card and sending those consumers firm offers of credit. It works like this:

1. A lender sets the criteria for the offer. Perhaps a lender is promoting a specific type of loan. It might want to only extend a firm offer of credit to people who have a credit score over 700, don't have any past-due accounts and live in a state where the creditor wants to expand its business.
2. The lender creates a prescreened list. The creditor can work with a credit bureau, such as Experian, to create a list of consumers who meet the criteria and will likely respond to an offer.
3. The creditor sends firm offers of credit. Once the creditor receives the prescreened list, it sends a firm offer of credit to everyone who meets the criteria.

The federal Fair Credit Reporting Act (FCRA), the law that governs who can access your credit report, how they can use it and your right to review your credit report, also governs how firm offers of credit work. Under the FCRA, creditors must:

• Extend firm offers of credit to every consumer on the prescreened list
• Approve consumers who accept the offer and still meet the criteria
• Provide notices to consumers who receive firm offers of credit
• Allow consumers to opt out of prescreened offers

Creditors have to honor the firm offer of credit, but that doesn't necessarily mean you're guaranteed to get approved.

For instance, you might have had a 705 credit score when the prescreened list was created. But if the lender checks your credit score when you respond to the offer and it's dropped to 695, your application can be denied.

Some of the lender's approval criteria also might not be in your credit report, such as your debt-to-income ratio (DTI)—because your income isn't part of your credit report. The creditor can't change the maximum DTI for the firm offer of credit after sending the offer, but it could deny you if your DTI is above that maximum.

Prequalified vs. Preapproved

The difference between prequalified and preapproved can be confusing because the two terms are sometimes used interchangeably. However, there is a clear distinction between when you submit a preapproval or prequalification request versus when a creditor sends you a firm offer of credit.

When Creditors Initiate the Process

When creditors initiate the process and send you a firm offer of credit, the offer might say you've been prescreened, preapproved or prequalified. Regardless of the word choice, the creditor must approve your application if you continue to meet the criteria. However, if you simply receive an invitation to apply without any notice that you've been prescreened, preapproved or prequalified, that's not a firm offer of credit and the same rules don't apply.

A credit prescreen always results in a soft credit inquiry—the type of credit check that doesn't affect credit scores.

When You Submit a Preapproval or Prequalification

If you're looking for a credit card or loan, you also might notice that the website or app says preapproval or prequalification. Credit cards tend to use the two terms interchangeably, but checking if you'll likely get approved generally results in a soft inquiry regardless of the wording.

There might be more of a distinction with loans, however. In general, getting prequalified is a less strenuous process than preapproval and therefore offers less assurance that you will get approved if you were to submit a formal credit application.

Unlike prequalification, consumer-initiated preapproval for a loan could involve submitting documents to verify your income. It's similar to submitting a complete application and typically results in a hard inquiry, the type that can hurt your credit scores a little.

Can You Opt Out of Credit Card and Loan Offers?

One of the notices that the FCRA requires creditors to send with a firm offer of credit is a notice that you have the right to opt out of prescreened offers. You can also opt out of prescreened credit and insurance offers at any time.

You can do this by calling the toll-free number 888-5-OPT-OUT (888-567-8688) or visiting OptOutPrescreen.com and either asking for a five-year pause or permanent opt-out. You may also need to opt out of other lists to stop other kinds of marketing letters and calls.

Opting out might make sense if you don't want to receive credit or insurance offers right now. You can also opt back in if you're interested in seeing which firm offers of credit you qualify for—sometimes you might even receive promotional offers that are only available to prescreened consumers.

How to Shop for Credit Cards and Loans

Accepting a firm offer of credit might make sense if you receive a good deal, but you can also shop for credit cards and loans to compare different options and try to get the best terms.

• Consider how you plan to use the account. There are various types of loans and credit cards, and you'll want to figure out which options best align with your financial goals.
• Read reviews. You can often find credit card reviews for specific cards—sometimes with helpful hints for how to best use the card. Lender and loan reviews can give you insight into what to expect when applying with particular lenders.
• See if you get preapproved. Some credit card issuers and lenders have preapproval tools that can quickly tell you if you'll likely qualify for a card or loan.
• Get matched with credit offers. Alternatively, you can use comparison tools to see if you can get matched with multiple credit card or loan offers and then choose the best of the bunch.

Your credit score will often be a factor in whether you get added to a prescreened list or approved for a new loan or credit card. You can check your FICO^® Score^☉ for free from Experian, and get tips on how to improve your credit.

You can also use your Experian account to access the credit card and personal loan comparison tool and get matched with offers based on your unique credit profile and a soft credit pull.