Beware Of The Pre-Approval Gimmick

When credit-card companies, car dealers and their cohorts try to suck you in by saying you are pre-approved for a loan, they haven't really requested a credit check and they know virtually nothing about your “creditworthiness”. Here are the details you should know about these offers.

You get a letter from a local car dealership that you have been "pre-approved" for an auto loan up to $25,000. The letter said the offer was based on "certain credit qualifying information received from a credit reporting agency." It looks to you as if these folks took it upon themselves to run a credit check on you. Can they do that you ask yourself? Is there anything I can do to put a stop to this nonsense? Why can’t we require that the credit reporting agencies have our permission before releasing our credit data? The answer to these questions is that the car dealership did not actually run a true credit check on you. What it did was buy a list of consumers from a credit bureau that met some minimum credit standard the dealership had set. This is the same thing that all of the credit-card companies do before they send out millions of "pre-approved" credit-card offers to unsuspecting consumers.

Selling such consumer solicitation lists is part of how credit bureaus make their money. The three major credit bureaus, Experian, Equifax and Trans Union, gather huge amounts of information about consumers and then sell this information to their subscribers. Not only do they provide full fledged credit reports, they also provide solicitation lists that are selected by certain criteria specified by the subscriber such as income level, credit score, geographical location or any other criteria selected by the subscriber. Other than using the opt-out service - which reduces but doesn't eliminate such credit solicitations - there's not much you can do. (For those not familiar with the service, it's run by the major credit bureaus and can be reached at (888) 5 OPT OUT. You'll need to enter your Social Security number and other information to identify yourself.)

If you had applied for the loan, then the dealership would have pulled your full credit report and decided whether you were creditworthy. Despite the wording of the notice, you wouldn't be guaranteed a loan. The good news, if there is any, is that these "pre-approved” offers don’t hurt your credit score.

Peter W. Saiger, President

Debt Negotiation Services