What do you typically find in your mailbox each afternoon? If yours is like mine, you probably get a mixture of coupons, delivery restaurant menus, the occasional letter, and pre-qualified credit card offers.
So, what exactly are these offers and what do they mean? Maybe you’ve been thinking about getting a new credit card but are afraid to impact your credit score by applying (and maybe being rejected). If so, the idea of a pre-qualified offer should really pique your interest.
Let’s take a look at why you’d even want to be pre-qualified and how you can get this kind of pre-approval. It could mean the difference between dinging your credit for no reason and snagging an enviable new credit card.
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What Does It Mean to Be “Pre-Qualified?”
When a bank pre-qualifies you for a line of credit, such as a loan or credit card, they will obtain what’s called a soft inquiry, or “soft pull,” on your credit. This allows them to see some basic information about your credit history and your credit score with the bureau from which they pulled the inquiry.
This soft pull is less comprehensive than a hard pull. It doesn’t give them your most detailed credit report information. Instead, it’s more of an overall view. However, this is usually enough for a potential lender to determine with a fair amount of confidence whether or not they would approve you for a credit product.
Banks will also obtain marketing lists on a regular basis. They use them to keep track of pre-qualified consumers based on specific criteria. Then, they uses these lists to solicit for new customers. This is why you get letters in the mail saying you’re pre-approved for a new home equity loan or rewards credit card.
However, keep in mind that pre-approval does not mean approval. It’s more the bank’s guess that you’re probably, possibly, more-than-likely someone that they would approve for a particular credit product. But without a hard pull and a little more information, nothing is set in stone.
Pros of Being Pre-Qualified
There are plenty of benefits to being pre-qualified by a bank. First and foremost, it gives you a decent idea of the credit for which you’d be approved. Maybe you’re going back and forth about whether you’d have a chance of being approved for a credit card. When you get a pre-approval letter, it’s probably worth the hard inquiry to apply.
Pre-qualifying is also a wise move if you think you won’t be approved for a certain line of credit. Many banks–like Chase, Discover, Bank of America, and CitiBank–will offer to pre-approve you for their products beforehand. Of course, it’s not the final word either way (you technically haven’t even applied yet). But it will give you a better idea of where you should focus your efforts before moving forward.
You can also go to a site like CreditCards.com to use their CardMatch tool. Here, you can enter some simple information about yourself, press enter, and instantly be connected with a number of cards for which you’re most likely to be approved. This will allow you to narrow down your list and pick a few credit products you’re likely receive.
Cons of Being Pre-Qualified
However, pre-qualifying has its downsides, too.
The biggest downside is probably that even if you are pre-qualified for an offer or product, the company could still flat-out deny you the same day. This could be because your credit report changed between the time they pulled your soft inquiry and the time you officially applied. It could also be because your soft pull painted a rosy credit picture. But once you supplied additional information–like your employment status and income, for instance–they decided not to move forward.
It can be a bit disheartening to be denied for a loan or credit product you assumed was in the bag. After all, they sought you out with a pre-qualified letter in the mail. Then they had the nerve to deny you once you bit. However, this is the name of the game with pre-approvals, and you should be aware of the possibility going in.
It’s important to note, though, that the occasional hard inquiry, even if you’re denied in the end, isn’t the end of the world. Assuming you don’t have a mountain of debt (particularly of the revolving variety) and aren’t out applying for credit cards left and right, a couple inquiries a year won’t impact your credit score much.
So, whether you are approved or denied in the end, that pre-qualified offer is probably still worth applying to, even if you wind up with a hard pull and no new plastic. Your best bet is to use the issuer’s page and see if they offer to pre-approve potential new cardholders. That way, you can at least get an idea of whether you stand a chance. You can also use a site like CreditCards.com to see various banks’ products for which you’re likely to be approved.
Take your pre-qualification with a grain of salt. Since it’s not an official application, it isn’t the final word. You can be pre-qualified and still get denied in the end. And you can miss being pre-qualified but wind up approved when all is said and done.
Credit sure is a finicky thing sometimes, huh?