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I receive quite a few "preapproved" credit card and personal loan offers in the mail. These invariably include an application form and a disclaimer that the card or loan might not be granted if further investigation proves me to be uncreditworthy. The "preapproved" language is, therefore, more marketing than actual reality.

Is there such a thing as a truly preapproved credit card or loan? That is, are there banks that actually fully investigate potential borrowers, before any application has been completed, and send them truly guaranteed offers? E.g., "This is not an ordinary preapproved offer - we have actually investigated your finances in depth and are ready to give you this card if you simply check the box below.".

I'm aware that most banks are probably fully comfortable with the existing system where "preapproved" offers are actually invitations to treat rather than actual offers, but I'm curious if what I'm asking about exists at all in any meaningful sense. If they do exist, what criteria are typically used? Do they go only to people with the highest of the highest credit ratings? Only to people who are already so well-known to a bank that the bank feels it already has more than enough information to make a decision?

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You asked,

Is there such a thing as a truly preapproved credit card or loan? That is, are there banks that actually fully investigate potential borrowers, before any application has been completed, and send them truly guaranteed offers?

No, there is no truly, completely, 100% "pre-approved loan." That concept just doesn't exist. The language of calling something pre-approved basically comes from regulation that controls how and when a lender is able to use credit report data in order to market their products. Understanding how pre-approved offers are generated, and how they're regulated, should help answer your question.

To clear the air, in terms of how these offers work, basically this is what happens:

  • A lender will decide they want to sell a bunch of consumer product X (credit card, personal loan, whatever).
  • The lender will reach out to a credit bureau, or a vendor that manages credit data as an intermediate between lenders and credit bureaus. This will result in the two parties agreeing on a set of terms to describe a population, based on very high level criteria (people in a certain geography, or with a certain credit score, or with or without certain trade lines.) The most typical criteria are based on paper grade (a way to roughly categorize credit scores). Sometimes the criteria will be based on a competitive product (i.e. "give me all people who have a credit card at a different bank"). But generally the criteria available are limited to a subset of typical credit report data (i.e. you can screen based on presence of a certain product with a different lender - give me all people with a credit card, but you can't screen based on targeting an actual specific lender - give me all people with a Chase credit card.).
  • The actual list of people to be pre-screened against these criteria may come from the vendor, or, the lender will supply a list of existing customers to the vendor, and ask the vendor to screen based on these criteria.
  • Once the terms are agreed on, the vendor provides a "pre-approved" list of individuals back to the lender. This list contains little detail and consists of people from the population identified who passed the basic criteria agreed to.
  • At that point, the lender is legally required to make the same offer to everyone on the list. They aren't allowed to pick and choose in any further detail before making the offer, which essentially limits the lender from being able to make a fully-qualified decision, since the data available to create a pre-screened list of only people who pass your full underwriting process isn't available en masse.

The regulations concerning this process came into effect when risk-based lending started to take off, and credit reports became important to the decision making process. Credit bureaus wanted a way to monetize the data they had for marketing purposes, but regulators didn't want to allow lenders to be picky - either based on incomplete information, or based on discriminatory practices (i.e. don't lend to people with a name associated with a certain ethnicity, and so on). Hence, the "if you buy data to support marketing, you must pre-approve in the batch and extend the same offer to everyone" emerged as a rule to make things both safe (lenders won't take the risk of actually extending credit based on limited data) and fair (lenders can't buy the data then be picky about who to make the offer to).

Ultimately the lender could, in theory, choose to make an actual offer of credit to the population that has been identified, but they would literally need to approve the entire population which simply isn't going to happen, since the data necessary to be sure that everyone on the list is truly creditworthy is not available at this point in the process.

So, a "pre-approved" offer simply means that you met some incredibly basic marketing-driven criteria and were on someone's list (either the lender or the vendor) of people who are able to be marketed to. In other words, a pre-approved offer is only able to be made based on limited data.

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  • Also things could happen between them sending the letter and you receiving the letter... and even the application isn't binding because things could happen between the application and approval. So in general it's more of an "if our assumptions are still correct by the time we make a decision it will be approved"
    – xyious
    Mar 20 '20 at 19:59
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I have received literally hundreds of those "preapproved offers". I have never seen one that didn't require an application first.

In the US, I believe there was problem in the 70s where some credit card companies were sending actual credit cards (including to someone's dog and several dead people). If memory serves, there was some federal laws passed to not allow that anymore.

So instead there are literally millions of the "preapproved offers" floating around every year instead.

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Based on my own experience they will send hundreds or thousands of offers to my home over the decades, when in reality I have never accepted any of them. Every credit card I have applied for was done when I thought I need a card, not when they sent me something in the mail. I think that the rate of success for these cold mailings is very low, but it meets their business model.

To do what you propose:

"This is not an ordinary preapproved offer - we have actually investigated your finances in depth and are ready to give you this card if you simply check the box below."

They would have to spend additional time to dig deeper into your finances, to be 100% sure that you will be a good risk. They will also have to know that that actual effort will result in more people sending in the paperwork.

They will have to be able to communicate to potential customers that this solicitation is different, but since I spend exactly 1 second with their letter, they don't have a good way of communicating it.

Of course just because the company thinks I am a good risk, doesn't mean that I want a new card this year. The easiest thing to do, if I need more credit, is for me to ask for a credit increase with a card I already have. They can make a decision in seconds because they already have years of data about me and how I handle credit. In many cases they can even increase my limit without me having to ask.

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  • I think that the rate of success for these cold mailings is very low FWIW it's typically very low single digits in my experience. But if you're sending the offer to a hundred thousand people, that still might result in a few thousand loans, and in many cases these campaigns are the cheapest way to get a sale for certain target audiences.
    – dwizum
    Mar 11 '20 at 13:34
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are there banks that actually fully investigate potential borrowers, before any application has been completed

Of course not, because portions of that investigation can't be performed without your permission to obtain sensitive financial data.

Even for a bank that you already have a relationship with, and even if you do all your banking with them so they can already see your total financial picture, they can't know that it is the total picture without relying on outside sources for which your permission is required.

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