When it comes to shopping for credit cards, while pre-qualified or pre-approved sound very similar, they’re quite different things. In this post we’ll give you the low down on what pre-qualification means, particularly when it comes to financing, its top benefits, how it impacts your credit, and how to go about evaluating offers.
What Is Pre-Qualification?
In a nutshell, pre-qualification is when you give the green light to providing your credit information to lenders to shop for different types of financing, such as credit cards, a car loan, or a mortgage. When it comes to credit cards, you typically have to contact the credit card issuer or bank and provide your limited personal information and basic financial details, such as your income and expenses, credit score, debt load, and employment.
In turn, you’re giving the issuer permission to access your credit report and credit score, and allow them to determine what product, you qualify for if, explains credit card expert John Ulzheimer, formerly of FICO and Equifax. You’re then formally asked to apply for that card.
When you give the okay to start the pre-qualification process, you’re in the discovery stage to see what kind of financing you’re eligible for. For example, let’s say you have your eye on a credit card with awesome travel perks. You reach out to the credit card company to see if you qualify. During the pre-qualification stage, the creditor goes through an assessment to see if you’re eligible.
If you receive a pre-qualification offer, it means you “might” (operative word here is “might”) be eligible to receive a line of credit. But after your credit report is requested and your file is looked over, there’s a chance you might be denied an offer.
Pre-Qualification Versus Pre-Approval
When it comes to pre-approval, which is also known as pre-screening, a lender decides on their own whether you’re creditworthy enough and meet the criteria for them to extend credit to you. The credit card issuer provides the credit bureaus with a list of criteria, which is then used to generate a list of consumers who meet that criteria, explains Ulzheimer. “The card issuer makes a firm offer of credit, either by mail or online, to those consumers hoping they will respond and become new credit card customers,” says Ulzheimer.
They’ll then send you an offer. The ball is then in your court whether you want to accept the offer. Pre-approvals are guarantees that you’re eligible for that credit card.
Does Pre-Qualification Impact My Credit?
The short answer is “no.” Opting in to pre-qualification doesn’t impact your credit. When you give permission to a credit card company, bank, or lender to start the process, a soft inquiry is added to your credit file. And as you know, soft inquiries don’t affect your credit score. It’s only after you’re eligible for an offer and submit an application that your credit reports are pulled and a hard inquiry is added to your credit file.
Benefits of Pre-Qualification
Because you’re screening for offers before you apply for them, you won’t be blindly applying for cards and loans that you don’t qualify for—which could ding your credit. It’s only after you complete the process to apply for a credit card that it can lower your credit score, points out Ulzheimer.
Typically, each hard pull could lower your credit by a few points, and usually stays on your credit file for about a year. Too many hard pulls could negatively impact your credit. By choosing to undergo the pre-qualification process by reaching out to a credit card issuer, bank or lender, you aren’t taking a stab in the dark, and you aren’t needlessly dinging your credit.
Another perk about pre-qualification is that you’ll get more targeted offers that are a potentially a better fit for your income, credit situation, and needs. You won’t be wading through offers or applying for cards that aren’t suitable for your current financial situation. It’ll save you time, money, and trouble.
Plus, you’ll also be able to choose card issuers and test drive their offers before choosing the one that fits best, says Ulzheimer.
What to Do If You’re Not Pre-Qualified
If you end up not pre-qualified for a card, don’t call it a complete loss and give up. Just think of it as a way to gauge types of cards you might get approved for. For instance, let’s say you don’t pre-qualify for a card. Look into why you might have not qualified for a particular card.
Perhaps the reason is that card you applied for typically requires a higher credit score or income than what you currently possess. If that’s the case, then consider applying for pre-qualification for another card with lower credit score or income requirements, and see what happens.
Tips for Evaluating Offers
Once you’ve received an offer—congrats! You’ll want to carefully look over the offer, of course. As they say, not all offers are good ones. This includes poring over the fine print, and going over the terms, fees, and conditions.
If there’s an introductory APR, check what the standard APR once the promo period ends. And how long is the introductory period for? Is there an annual fee? Another thing to check is the rewards and perks of the card. What’s the earn and burn rates? And if there’s an annual fee, do the rewards offset the costs of the card?
And while it’s certainly exciting to receive an offer, don’t necessarily go for the first one you receive. See how the rates and fees of the card you’ve been approved for stack up against other cards. And no need to go hog-wild. Choose judiciously.
When shopping for credit cards, while pre-qualification and pre-approved are terms that are oftentimes used interchangeably, it’s important to know the difference. Pre-qualification is a great way to see what types of cards you might be approved for without having to sacrifice credit points, so to speak, sans the needless hard pulls on your credit profile. Happy hunting!
Jackie Lam is a personal finance writer. Her work has appeared in Investopedia, Magnify Money and The Bold Italic, and she’s been featured in Money, Kiplinger, Forbes and Woman’s Day. She runs Cheapsters.org, a blog to help freelancers and artists with their money, and to balance their passion projects and careers.