Credit Myth Busting: The Opt Out Myth – Credit Countdown With Consumer Credit Expert John Ulzheimer

The “opt-out” myth is one of many myths that lead consumers astray when it comes to credit. What is the opt-out myth and why does it not work?

What Are Pre-Screened Credit Offers?

Pre-screened credit card offers are preliminary offers of credit that credit card companies send to consumers who have a credit profile that matches with that of the company’s desired customer base. The way that the banks determine this is they purchase pre-screened lists of consumers from the credit reporting agencies.

For example, a credit card issuer could request a list of a million consumers who have a credit score between 650 and 725, do not have any bankruptcies on their records, and have not opened a new credit card in the past six months. The credit bureaus would then compile a list of consumers who fit that set of criteria and sell this list to the lender so that the lender can offer credit cards to these consumers.

Is It Legal for the Credit Bureaus to Sell Your Information on Pre-Screened Lists?

Yes, it is completely legal for the credit reporting agencies to include your information on pre-screened lists of consumers for lenders to purchase. It is not a controversial practice.

In fact, credit card issuers very commonly use these pre-screened lists as a way to acquire new consumers, as you may already know if you regularly receive such offers in the mail yourself.

Do You Get Inquiries on Your Credit Reports From Pre-Screened Credit Offers?

Because your credit report is generated and accessed by a business during the pre-screening process, this results in you getting a soft inquiry on your credit report.

For this reason, you may see soft inquiries on your credit report from companies you do not recognize who may have extended a pre-screened offer to you.

Can You Get Your Name Taken Off These Pre-Screened Lists?

You have the right to order the credit reporting agencies to not include your name on the pre-screened lists that they sell to banks. In other words, you are allowed to “opt out” of the pre-screening process.

Opting out is free and easy to do. All you have to do is go to www.optoutprescreen.com, which is a website that is operated by the credit bureaus because they are obligated under the Fair Credit Reporting Act to allow consumers the ability to opt out of having their names on these pre-screened lists.

At this website, you can opt out permanently, or, alternatively, you can choose to opt out for just five years.

If you want your mailbox to stop filling up with pre-screened credit card offers, then opting out via this website is the way to do it.

What Is the Opt-Out Myth?

The myth regarding opting out is the belief that if you opt out of receiving pre-screened credit offers, your credit score will go up.

The reasoning behind this myth comes from the misconception that soft inquiries on your credit report will hurt your credit score.

Soft Inquiries vs. Hard Inquiries

There are two types of credit inquiries: hard inquiries and soft inquiries.

Hard inquiries on your credit report are the result of you applying to obtain credit from a lender. When you do this, the lender pulls your credit report to see if you are creditworthy by their standards.

Because your credit report has been accessed by a lender for the purpose of approving or denying your application, a hard inquiry goes onto your credit report, indicating that you are actively looking to borrow. This implies that you are now a higher credit risk, so your credit score may go down a few points as a result of a hard inquiry.

Soft inquiries, on the other hand, may show up on your credit report when businesses check your credit for other reasons, such as a landlord pulling your credit before approving you for a rental or a prospective employer looking at your credit report as part of the job application process. This also applies to credit card issuers including you in groups of pre-screened consumers in order to solicit your business.

That means you can be confident that being pre-screened for credit offers only results in soft inquiries being added to your credit report.

Soft inquiries do not represent applications for credit on your part, which means they do not reflect your risk level as a borrower. For this reason, they do not impact your credit score at all. They just serve as a record of who has accessed your report.

Why the Opt-Out Myth Is Wrong

The myth that opting out helps your credit score would make sense if we were dealing with hard inquiries on your credit report because hard inquiries can hurt your score.

However, as we pointed out, the only inquiries you get from the pre-screening process are soft inquiries, and while soft inquiries do appear on your credit report, credit scores do not consider them as a scoring factor. Credit scoring systems don’t even know whether you are opted in or opted out of pre-screened offers.

Therefore, pre-screened credit card offers do not affect your credit score at all, so opting out of receiving them will not make a difference to your score either.

Avoid Opt-Out Scams

If you try searching for information about the opt-out myth, you might come across some offers to “help” you opt out and increase your credit score—for a fee. Avoid scam artists who try to sell you products and services to accomplish something that:

Will not actually improve your credit score,
You can do yourself,
Is free to do, and
Takes just about a minute.

Conclusions on the Opt-Out Myth

Despite the fact that misinformation about this topic is commonplace, we can safely say that opting out of pre-screened credit card offers will not help your credit score because being pre-screened does not affect your score in the first place.

However, if you do not want to be included on lists of pre-screened consumers for other reasons, you can quickly and easily opt out on www.optoutprescreen.com for free.

View the Credit Countdown video on this topic below and then check out our YouTube channel for more informative videos!

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