Credit card companies often mail letters to potential customers explaining they are pre-qualified or pre-approved for a new card. Issuing banks do this because they believe you may be eligible for a credit card. Pre-qualified and pre-approved are terms traditionally used in conjunction with loans and mortgages, and there are more clearly defined differences between the two terms in those instances. That’s not the case with credit cards, however. Understanding the difference between pre-approved vs. pre-qualified can help you avoid confusion and know confidently what to do when receiving an offer in the mail.
Pre-qualified vs. pre-approved: Key differences explained
It is understandable to believe that receiving either a pre-approved or pre-qualified credit card offer guarantees approval when you apply. Both pre-qualification and pre-approval indicate that you may meet the initial criteria set by the credit card issuer, but meeting these criteria does not guarantee approval. Neither term assures final approval, and it’s common for issuing banks to use both terms interchangeably.
Credit check type: Soft pull vs. hard pull
A credit check is necessary whenever you apply for a new credit card. Pre-qualified credit card offers commonly perform a soft credit check. Soft pulls don’t negatively impact your credit score.
Pre-approval offers typically perform soft pulls as well; however, they will trigger a hard inquiry if you actually apply. A hard inquiry can affect your credit score, while a soft inquiry does not.
Information required: Basic vs. detailed
A key difference when considering pre-qualified vs. pre-approved cards is the depth of information the issuer requires. Pre-qualification involves a review of your basic financial information, such as your annual income and housing situation. Issuing banks gather this information either through a pre-qualification form completed online or via a soft credit inquiry.
When seeking pre-qualification, you typically provide basic financial information, including your income level, enabling the issuer to estimate your eligibility without impacting your credit score.
In contrast, pre-approval results from a more rigorous process involving a detailed review of your credit and financial standing. Issuers use pre-approval as a way to identify individuals they believe are more likely to be approved, often as part of their marketing efforts.
Accuracy of approval odds
There is no promise of approval with either pre-approved or pre-qualified credit card offers. Receiving a pre-qualification suggests you may qualify, but a complete application is necessary. Pre-approval provides a bit more reason for confidence, as it is generally considered a stronger indication of your likelihood to be approved, but there’s no guarantee, and you still need to officially apply.
Understanding pre-qualification for credit cards
If you’re looking for a new credit card, obtaining a pre-qualified offer is a low-risk way to start. Doing so helps shed light on the type of card you may be eligible to receive from the issuing bank. Pre-qualification means a credit card issuer has performed a basic review of your financial situation as an early step in the application process.
What does pre-qualified mean for a credit card?
When comparing pre-qualified vs. pre-approved credit cards, it is understandable to believe they’re the same thing. Credit card companies often use the two terms interchangeably, but they’re different. Pre-qualified offers mean the issuer has reviewed limited information, and it believes you may qualify.
In essence, pre-qualification is a screening tool companies use. Many credit card issuers allow prospective customers to complete a pre-qualification form on their website. Using these pre-qualification tools can help you identify your next credit card based on your current financial profile.
How lenders assess eligibility
Eligibility for pre-qualified credit card offers is typically determined after you provide several pieces of information. It’s fair to expect to provide data like your name, Social Security number, mailing address, monthly income, and housing situation.
Lenders review your credit history and may obtain information from credit bureaus to assess your eligibility. The issuer takes that information and performs a soft credit check to assess whether you might meet the eligibility requirements for their credit cards. Eligibility requirements can vary depending on the credit card issuer and the specific card.
Soft inquiry and its impact on credit score
Soft credit inquiries do not hurt your credit score. Additionally, only you can see soft inquiries in your credit report, as they’re often not visible to potential creditors.
If you decide to apply for a credit card, it will result in a hard credit inquiry, which will reflect on your credit report and may temporarily lower your credit score.
When to consider pre-qualification
Getting pre-qualified for a credit card is a wise choice if you’re uncertain of your approval odds. Requesting pre-qualification is beneficial for people rebuilding their credit, applying for a first credit card, or adding a new card to their wallet. Major issuers, like Chase and American Express, have online pre-qualification forms that you can complete to check your eligibility instantly. When considering pre-qualification, make sure to evaluate your financial needs to ensure the card you choose aligns with your specific financial situation.
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What is a pre-approved credit card offer?
A pre-approved credit card offer means a lender has reviewed your data and identified you as someone who may meet the criteria to qualify for a card. Pre-approved offers are typically sent by lenders after a preliminary review of your creditworthiness. You’ve likely received such offers in a glossy envelope saying you’re pre-approved for a specific card. A pre-approval offer is a preliminary authorization indicating you meet certain criteria, but it does not guarantee final approval. Some lenders may also provide a pre-approval letter outlining the terms for which you may qualify.
What is a pre-approved credit card?
It is easy to ask yourself ‘What does pre-approved mean for a credit card?’ and believe it means you’re assured of approval upon applying for the card. In reality, that’s simply not the case.
A pre-approved card merely means you might fit the target profile of the credit card company. It means that the company thinks your credit score range, payment history, or monthly income makes you a good candidate for the card. In short, it’s an invitation to apply. Pre-approval offers often outline specific credit card terms, such as interest rates and credit limits, based on your credit profile.
Prescreening process by lenders
For years, credit card companies have applied a common pre-screening practice. Upon deciding what factors will qualify a consumer for their credit card, they ask a credit reporting agency to provide a list of individuals in their database who meet those requirements.
Prescreened offers for a loan or credit card are often sent to consumers who meet certain criteria, based on information in their credit reports. You can also check your pre-qualification or pre-approval status directly on the credit card issuer’s website to see if you are eligible for personalized offers.
It may seem shady, but it’s allowed under the Fair Credit Reporting Act. If you prefer not to receive such offers, you can opt out at OptOutPrescreen.com.
Mail vs. online pre-approval offers
It can take several months for pre-screened credit card offers to arrive, and your credit profile may have significantly changed over that time. Pre-approval offers are often sent via physical mail, which can result in a lengthier process compared to online offers. If that’s the case, you may no longer be a suitable match for the credit card in the eyes of the issuing bank.
Online pre-approval offers typically use the most recent data in your credit report. The up-to-date information helps the company get a better idea of your creditworthiness. You can use a resource like CardFinder to identify potential matches for you without triggering a hard inquiry.
Does pre-approval guarantee approval?
Receiving a pre-approval does not guarantee approval for the credit card. Pre-approval indicates strong odds of approval, but there’s no guarantee until you apply and the credit card issuer performs a hard inquiry on your credit.
After pre-approval, your application may go through a more rigorous process known as the underwriting process, where the lender conducts a rigorous review of your financial background and supporting documentation before making a final decision.
If it identifies a high credit utilization ratio, recent late payments, or more, they may decline your application.
How pre-qualification and pre-approval affect your credit
There’s traditionally little difference between pre-approved vs. pre-qualified credit cards and how they impact your credit. Both commonly use soft inquiries, which don’t hurt your credit. However, while pre-qualification and pre-approval for credit cards typically require minimal information, the process for a loan, auto loan, or mortgage pre-approval often involves submitting documentation such as tax returns, bank statements, and pay stubs, and a thorough review of your financial circumstances.
Soft vs. hard inquiries: What changes your score?
A soft credit inquiry is relatively insignificant. Lenders use soft inquiries to pre-qualify or pre-approve you for a credit card. Soft inquiries are only viewable on reports by consumers and don’t affect your credit.
Alternatively, a hard credit inquiry only occurs after application, and it does impact your credit. Creditors consider your credit application activity, which can impact the approval decision.
Impact of applying after pre-approval
It’s essential to remember that pre-approval has no impact on your credit. Immediately after applying for a new credit card, though, a hard inquiry hits your credit file. You can expect to see a temporary decline in your credit score, typically by five or ten points, but it’s a temporary blip.
A single inquiry commonly has a minimal impact, but multiple applications in a short time can appear risky.
How long do inquiries stay on your report?
Hard inquiries can remain on your credit report for up to two years. Fortunately, most scoring models only weigh them in your score for the first 12 months. There’s nothing you need to do to remove them as they fall off naturally.
Rate shopping and credit scoring models
Credit scoring models give consumers a grace period when rate shopping for auto loans or mortgages. You can have multiple inquiries within a 14 to 45-day window, and it only counts as one.
That’s not the case with credit cards. Every application creates a hard inquiry on your credit report. If you apply for multiple cards close together, it can result in a bigger cumulative effect. Using online pre-qualification tools is a helpful way to effectively rate shop without submitting a full application.
Bottom line
Pre-qualification and pre-approval are similar in nature, but they’re not mirror images. Credit card companies use the terms in the same way, and neither guarantees your approval. Understanding the differences can help you know how to act more strategically and limit the number of hard inquiries on your credit report. Don’t overlook using online pre-qualification tools to get a better idea of what kind of cards you may be able to successfully get.
