Does Opting Out Improve Your FICO Score?
Updated: Jun 18, 2018
What is exactly is opting out?
We all get them weekly in the mail & online; Offers of credit cards of the "pre-approved" variety, which means the credit card issuer has actually determined that they are willing to offer you a credit card even though you never asked for one.
Unbeknownst to you, the credit card issuer purchased your name, along with many others, from one of the credit reporting agencies through a process called "pre-screening." Pre-screening is the process whereby the card issuer gives the credit bureau a list of criteria and wants a list of consumer names and addresses that meet that criteria. These lists can come from Experian, Equifax, Transunion, & Vantage Score. Mercy me....
A Credit Card Company might purchase from the credit bureaus a list of 2,000,000 names and addresses belonging to consumers who live in the Los Angeles area who have credit scores above 700, don't have any late payments in the past 24 months, and don't have more than $10,000 of credit card debt. This is called "selection criteria." Of course, the credit bureaus have to tap into their credit file database in order determine who meets this criteria.
By law, when the credit card issuer acquires your name and address using this method then they have to make you what's referred to as a "firm offer of credit or insurance." This is normally done by sending you a credit card offer in the mail saying that you've been pre-approved for some amount of credit. All of this will result in a "promotional" inquiry being posted on your credit report. This is perfectly legal for the Bureaus to do, & it has been going on for years.
The Fair Credit Reporting Act gives consumers the ability to prevent the credit bureaus from selling their names to lenders through a process called "Opting Out."
You can do this for free at http://www.optoutprescreen.com. You can opt out forever or for a shorter amount of time. After a few months you'll stop getting pre-approved credit card offers in the mail.
The opting out myth
Some Loan Officers & the General Public get sucked into the myth of Opting-Out. They mistakenly believe that you will improve your credit scores by opting out. The problem is that it's simply not true. Opting out has no impact at all on your credit scores. Let me repeat: "OPTING-OUT has no impact on your credit score whatsoever'....
The only direct influence opting out has on your credit reports is to prevent new promotional inquiries from being added. But, promotional inquiries are of the "soft" variety and they have no impact on your credit scores anyway so preventing them doesn't do anything for your scores.
Advantages to opting out
There is practical value to opting out. By choosing to opt-out you will reduce, or fully stop unwanted credit card offers, which means less mail to throw away or shred. Also, because those credit card offers can be used by fraudulently to open new cards in your name, opting out can help to minimize your risk of credit card identity theft. But, that's where the value starts & stops. You cannot raise your credit score by opting-out. If you want to raise your score, take a pass on this myth......
This is The Credit Cowboy & I am out...