If you’re thinking of applying for a new credit card, you’ve probably heard about the terms pre-qualification and pre-approval. Although many people use these terms interchangeably, they are actually different from one another. So what exactly is pre approved vs pre qualified credit cards?
Let’s take a closer look at pre-approved vs. pre-qualified credit cards. The difference between these two boils down to who starts the process. Consumers request a credit card pre-qualification while credit card issuers or banks initiate the pre-approval process.
What Does it Mean to be Pre-Qualified?
For pre-qualification, you’ll request the credit card provider to check your chances of getting approved for a new credit card. You can do this by phone or online.
American Express, for instance, offers an online credit card pre-qualification. You need to fill out an online form and provide some personal information, such as your full name, address, last four digits of your Social Security number, and your annual income. After submitting your data, the creditor will conduct a soft inquiry on your credit report, which won’t negatively affect your credit score. Once done, you’ll be given a list of credit cards you may be approved for.
Does Pre-Qualified Mean You’re Approved for a New Credit Card?
Getting pre-qualified means you passed the initial requirements of becoming a credit cardholder. But you still have to formally apply for a new credit card and get approved. Your application can still be declined even after you get pre-qualified. Some reasons that may lead to a rejected application include multiple credit applications or too much debt.
Why Should You Request Pre-Qualification Before Applying for a New Credit Card?
You should get pre-qualified first if you plan to apply for a new credit card, but you don’t know if your credit score is high enough to secure approval. During the pre-qualification process, the issuer will take a quick look at your credit history to determine your creditworthiness. Pre-qualifications involve soft inquiries only, which means your credit score won’t take a hit. Therefore, prequalifying for multiple credit cards won’t affect your credit score.
However, if you decide to apply right away, the issuer will conduct a hard inquiry in your credit report. A hard inquiry lowers your credit score by five points or less. Imagine the impact on your credit score if you applied for 4 different credit cards simultaneously? As such, it’s better to get pre-qualified first since it doesn’t pose a threat to your credit score.
Some of the credit card issuers that offer pre-qualification forms include:
Personal Credit Scoring System for FICO and VantageScores
What is Credit Card Pre-Approval?
Credit card pre-approval is a process initiated by a creditor, bank, or credit card issuer. They ask for a list of consumers from any of the credit card reporting bureaus (Experian, Equifax, TransUnion) that meet specific requirements, such as credit score, no missed payments over a certain period, no bankruptcies, and so on. These individuals will then be offered a firm offer of credit.
Aside from requesting a list, credit card issuers may also provide one to any of the credit bureaus and ask them for assistance in determining which consumers are a good fit for new offers. Under the Fair Credit Reporting Act (FCRA), creditors that initiate pre-approvals must extend “firm offers of credit” to all consumers who meet their requirements. That’s why you may receive mails that say you’ve been pre-approved for new credit card offers. Now, you wonder, “Should I accept a pre-approved credit card?” That will depend on whether the offer comes with benefits that are suitable for your needs.
What Happens if You Get Approved for a New Credit Card After Getting Pre-Approved?
Remember that a pre-approval, such as a Capital One pre-approval, doesn’t guarantee that you’ll get approved. You still need to submit an official application so that the creditor can conduct a hard inquiry and take a closer look at your credit history. If you get approved, the credit card issuer must offer you the exact terms that appeared on your credit card offer.
What Happens When Your Application Gets Declined Even After Receiving a Pre-Approved Offer?
Your application may still be declined if your credit report after the hard inquiry shows negative marks, which may have not been present during the pre-approval process. These negative items include foreclosures, bankruptcies, delinquent payments, or additional debt. Changes to your income after the soft inquiry may also affect the issuer’s initial offer.
The issuer will no longer be bound to their initial offer. They can revoke or change the type of credit card, credit limit, credit terms, and credit amount.
If your application was declined, the credit card issuer must send you an adverse action notice. Under the FCRA and the Equal Credit Reporting Act, this letter should contain an explanation of why your application was denied and tips to help improve your chances of securing approval. Additionally, you have 60 days to request a free copy of your credit report if your application was denied because of information in your credit report.
How Do You Opt-Out of Pre-Approved Credit Card Offers?
If you no longer want to receive pre-approved offers from various credit card providers, you have the option to opt-out. Under the FCRA, you have the right to opt-out of pre-approved offers by mail, phone, or online.
You have two options: opt-out for five years or opt-out permanently.
If you want to stop receiving pre-approved offers for five years, you can call 1-888-567-8688 or visit www.optoutprescreen.com.
If you want to opt-out permanently, you need to visit www.optoutprescreen.com and complete a Permanent Opt-Out Election form, which will be given after you initiate the opt-out process.
To opt-out by mail, you have to submit a written request to each consumer reporting agency.
Whether it’s by mail, phone, or online, you need to provide some personal information, such as your name, phone number, date of birth, and Social Security number.
Send them to:
Innovis Consumer Assistance
P.O. Box 1640
Pittsburgh, PA 15230
Equifax
Options
P.O. Box 740123
Atlanta, GA 30374-0123
Experian
Opt Out
P.O. Box 919
Allen, TX 75013
TransUnion
Name Removal Option
P.O. Box 505
Woodlyn, PA 19094
What are the Advantages of Pre-Qualified Credit Cards?
- It’s free.
- No hit to your credit score.
- You’ll know your odds of getting approved for new credit cards.
- You can request multiple pre-qualification requests without worrying about your credit score.
- You can use pre-qualified offers to shop and compare other credit cards.
What are the Advantages of Pre-Approved Credit Cards?
- You don’t have to search for new credit card offers because lenders will do that for you. You’ll be an appealing borrower to many lenders if you have a good credit score and they’ll be glad to offer you credit cards with several perks, rewards, and other amazing benefits.
- No hit to your credit score.
- You can use the offers to shop and compare other credit cards and find the best one for your needs.
- You receive exclusive offers from credit card providers.
- You can better assess your chances of getting approved before you submit a formal application.
What are the Disadvantages of Pre-Qualified and Pre-Approved Credit Cards?
Pre-qualified and pre-approved offers let you know what credit cards you’ll most likely get approved for. They may tempt you to apply for more credit cards than you can handle. So, be sure to apply only for cards that you need and you can pay.
How Does a Pre-Qualification or Pre-Approval Affect Your Credit Score?
The pre-qualification and pre-approval process won’t affect your credit score. The lender only uses a soft inquiry on your credit history, and it won’t lower your credit score or appear on your credit report.
However, if you formally apply for a new credit card, the lender will perform a hard inquiry. This will appear on your credit report and may cause a significant impact on your credit score, especially if you made multiple applications within a short span of time.
What to Do if You Pre-Qualify or Get Pre-Approved?
When you receive a pre-approved offer by mail or if your request shows you’re pre-qualified, you’ll get credit card offers where you have higher chances of getting approved for. What should you do next?
Since issuers only perform a soft inquiry on your credit report, you can check if you’re pre-qualified with other creditors as well. This process allows you to shop around without hurting your credit score. You can submit several pre-qualification requests so that you can compare fees, rewards, and other offers until you find the best credit card that’s most suitable for you and gives you higher chances of securing approval.
What to Do if You Don’t Pre-Qualify?
Resist the temptation of submitting a formal application even if you didn’t pre-qualify for a credit card. You may end up hurting your credit score, especially if you submit applications with other creditors within a short period. If you didn’t get pre-qualified for a specific card, you can try with a different credit card provider.
You also need to improve your credit score. If you don’t pre-qualify for any new credit card, then there’s something wrong with your credit score. Become a responsible borrower by developing habits that help boost your credit score, such as paying your bills on time and applying for credit only when needed.
Review your credit report so that you’ll know what’s preventing you from getting approved. You should also check for errors in your report and dispute them right away.
Conclusion
Getting pre-qualified or pre-approved is a good sign that you may secure a new credit card when you submit a formal application. However, you need to remember that receiving a pre-qualification or pre-approved offer isn’t a guarantee but only shows your chances of getting approved. Instead of applying right away, you can use the offers you get to shop and compare credit cards that you have good chances of getting approved for.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
