What Is a Firm Offer of Credit?

What Is a Firm Offer of Credit?

A firm offer of credit is a specific type of offer that lenders can make to attract new customers.

Lenders use this approach because it allows them to target people who qualify for and may be interested in a new loan or credit card. Alternatively, the lender might waste money sending offers to people who wouldn't qualify if they applied.

There are usually several steps to sending firm offers of credit:

1. A lender sets the criteria for the offer. Lenders determine the minimum requirements for the offer. For instance, a credit card issuer that's launching a new credit card might want to send a firm offer of credit to people who have a credit score over 700, don't have any delinquent 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. Sometimes, the lender can more precisely target groups based on information that's not in their credit reports, such as their estimated income.
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.

Lenders can also work with credit bureaus to send firm offers of credit based on changes in your credit report. For example, if you submit a mortgage preapproval application that results in a hard inquiry when you start shopping for a home, other lenders might use that as part of the initial criteria to send you a firm offer for a mortgage loan.

Learn more: Can I Opt Out of Preapproved Credit Offers?

How Does a Firm Offer of Credit Work?

The federal Fair Credit Reporting Act (FCRA) governs who can access your credit report, how they can use it, your right to review your credit report and how firm offers of credit work.

The FCRA allows companies to use information from your credit report in certain circumstances, including for sending out marketing offers. But to comply with the FCRA, financial institutions 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

The FCRA doesn't govern offers that don't involve information from your credit report. For example, lenders may send "invitations to apply" to select groups of people based on marketing data. However, unlike firm offers of credit, these are simply telling you about the product and trying to get you to apply.

Does a Firm Offer of Credit Guarantee Approval?

Creditors have to honor the firm offer of credit, and they can't change the criteria after sending out firm offers of credit. But that doesn't mean you're guaranteed to get approved.

Lenders may be able to deny you if:

• Your credit score drops: Perhaps you had a 720 credit score when you were prescreened for an offer requiring a credit score of 700, but then your score drops to 660 before you accept it.
• You move: And you no longer live in an eligible region.
• Your income isn't high enough: You'll need to meet the offer's minimum income and maximum debt-to-income ratio (DTI) requirements. Some lenders might send firm offers of credit without knowing your income, but they'll request this information when you want to accept the offer. Or, you might be disqualified if your income or monthly debt payments changed.
• You don't have collateral: When the firm offer of credit is for a secured loan, such as a mortgage or auto title loan, you'll need to have and be willing to use the appropriate type of asset as collateral to get the loan.

Lenders may also be able to deny your application if you fraudulently altered information in your credit report. You might risk unknowingly doing this if you work with a dishonest credit repair company.

Learn more: How to Increase Your Chances of Getting Approved for New Credit

Prequalified vs. Preapproved Offers

A firm offer of credit is sometimes called a prescreened offer. You may also hear about prequalified and preapproved offers for loans or credit cards.

The terminology can be confusing, especially because companies sometimes use prequalified and preapproved interchangeably. However, there is a clear distinction between what happens when a creditor sends you a firm offer of credit and when you submit a preapproval or prequalification request.

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 generally has to approve your application if you accept the offer and still meet the criteria.

You might receive an invitation to apply without a notice that you've been prescreened, preapproved or prequalified. If so, that's not a firm offer of credit, and the firm offer of credit requirements don't apply.

When You Submit a Preapproval or Prequalification

If you're looking for a credit card or loan, you might notice that the website or app says that you can check if you're preapproved or prequalified.

Credit card issuers tend to use the two terms interchangeably, and checking if you'll likely get approved for a new card generally results in a soft inquiry, which doesn't affect your credit scores. If you choose to complete the credit card application, you may need to agree to a hard inquiry, which could affect your credit scores.

There's often a more distinct difference with loans. In general, getting prequalified is a less strenuous process that requires you to submit estimated information, such as your credit score range and annual income. It also usually results in a soft credit check.

In contrast, a preapproval for a loan might require you to submit copies of documents to verify your identity and income. It's similar to submitting a complete application and typically results in a hard inquiry, which may hurt your credit scores.

Learn more: How to Prequalify for a Personal Loan

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 your options.

Here are four steps you can take to get started:

1. Consider how you plan to use the account. There are many types of loans and credit cards, and you can find varying offers for each type. Whether you're making a big purchase, refinancing debt, looking for credit card benefits or have another goal in mind, make sure the account type and offer match.
2. Read reviews about the company and product. You can read credit card reviews to learn about the pros, cons, rewards and other benefits for each card. Lender and loan reviews can also give you insight into what to expect when you apply for and repay a loan from a particular lender.
3. 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.
4. 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.

Frequently Asked Questions

Improve Your Credit to Get Better Offers

Creditors will often use credit scores as one of the eligibility factors when prescreening people for firm offers of credit. Having a higher credit score may help you qualify for more and better offers. Additionally, your credit score can affect whether you get approved when you apply on your own, and the credit limits and interest rates on your new credit cards and loans.

With Experian's free credit monitoring service, you can check and monitor your FICO^® Score^Θ and Experian credit report for free, and get personalized insights on how to increase your score.