Have you ever been sent an offer saying your pre-approved for a credit card but not known what it meant? This blog is here to help…
Pre-Qualified vs Pre-Approved
You may see the two terms, ‘pre-qualified’ and -pre-approved’ used interchangeably, but they’re slightly different things. Both of these things essentially mean that you meet the initial criteria required to have a credit card. This doesn’t mean you have a credit card, or that you’ve applied for one; it just means you’re likely to get approved for one if you do choose to apply. A pre-qualification or pre-approval might come to you by post, phone, or email.
Pre-qualification tends to be an earlier step in the screening process than pre-approval. It is based on a basic review of your credit profile.
Pre-approval usually means that the credit card company has reviewed your credit history and financial information in more detail. This often includes a soft credit inquiry and tends to involve more criteria than for pre-qualified offers. It tends to be a stronger indicator of approval than pre-qualification and often means you’ll be accepted so long as you pass the lender’s fraud checks and they can verify that all of your application details are accurate and up-to-date.
Pre-approved offers usually come with a guaranteed APR. Unlike representative or typical APR, which is the rate at least 51% of people will get, a guaranteed APR means you will definitely get that annual percentage rate.
If you then decide to apply for a credit card, the credit card company would then look in more detail at your credit history and financial information, conducting a hard inquiry.
Soft vs Hard Inquiry
When lenders decide whether to lend you money, they will access your credit report to help them decide your creditworthiness, i.e, how likely you are to pay them back what you borrow. There are two types of credit inquiries, both of which have already been referenced in this blog: soft inquiries and hard inquiries.
Soft credit inquiries are when you check your own credit report, or when an individual or company looks into your credit as part of a background check. For example, your credit card issuer may check your credit without you knowing to see whether you qualify for promotional credit card offers. Soft inquiries have no impact on your credit score.
Hard credit inquiries are usually when a lender does a complete check of your credit when making a lending decision, such as when you apply for a mortgage or credit card or loan. This can lower your score by a small amount, but if you apply for lots of credit cards at once, get rejected for them all, and then apply for a mortgage for example, this may have a negative impact on your application. This is mainly because multiple hard inquiries over a short amount of time can make you seem like a higher-risk customer to lenders, as it suggests that you’re desperate for credit and so aren’t in control of your spending.