A pre-approval letter from any credit card company can feel exciting. After all, the word “pre-approved” must mean you’re already accepted into the loan, right? Actually, no. When you get a mailer that says you’re pre-approved for a credit card, the truth is, you’re only approved to apply for that card.

To really know what each advertisement is offering, you should read the fine print carefully. There, you’ll usually find that your information (mailing address, name, maybe even general credit rating) has been given to the creditor, and based on this preliminary data, they’re offering you the chance to apply for a line of credit.

Should You Apply?

Of course, the next question is whether you would benefit if you take the bait, and that’s a great question. Knowing what happens next can help you decide.

• First, you’ll spend time filling out paperwork and providing proof of income, tax return information, the status of other open credit accounts, and even collateral assets that you own.

• Next, the credit company will decide whether these numbers are sufficient enough to extend you a new line of credit, or if you’ll be rejected. Yes, even if you received that letter claiming you’re pre-approved for a credit card, the process can (and many times, does) end here.

• Then, if you’re approved, the rates and terms are negotiated — another potentially disheartening surprise. Obviously, you’ll be expecting the “low low rate” and credit amount that was promised on the letter you received, but it’s rare that that actually happens. If you were not approved, an even unhappier surprise awaits: Your credit score may take a nasty hit, showing a “rejected inquiry” and making it harder to get a credit line next time.

Pre-Screened?

If you get a letter that says you’re pre-screened for a credit card, a different offer is being made. Somehow, a creditor has gotten your permission to do extensive research on your credit history, and has deemed you worthy of a new card. The offer is firm. And unless you’ve moved away or fraudulently altered your credit history somehow, the offer stands. It’s valid. But should you take it? That is a good question for your nonprofit credit counselor.

To Your Credit

There’s a lot of uncertainty around how handling credit cards can affect your financial future. Although, one thing is for sure — doing your research diligently will always pay off in the long run.

Image source: Flickr

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