“Good news! You’re prequalified for a credit card with a limit of $5,000!”
We’ve all received prescreened offers in the mail from credit card companies encouraging us to apply. But what was used in determining your prequalification? If the offer says you’re preapproved, why do you still have to apply for the credit card? What’s the difference between “prequalified,” “preapproved” and “preselected,” anyway? And how does all of this affect your credit score?
Let’s explore these questions and more as we break down the prequalification process for credit cards.
Prequalification vs. preapproval: What’s the difference?
Prequalification and preapproval are common terms that apply not only to credit cards, but also other loans like mortgages and car loans. In general, both terms can mean that an initial review by a lender — in this case, a credit card company — indicates you may be approved for an offer (here, a credit card).
But there are differences to keep in mind, and depending on the credit card issuer, the terms might have separate meanings and requirements. The most important thing to note is that even if you’ve been prequalified or preapproved for a credit card, it doesn’t guarantee you’ll be approved if you apply. It just opens the door to let you know that you can officially apply.
Understanding prequalification
If you’ve been prequalified for a credit card, it means the issuer has done at least a basic review of your credit history to determine that you might be approved for a credit card. Prequalification is typically a consumer-initiated experience, meaning you’re actively shopping for a credit card. Getting prequalified can help you shop for a card with a better understanding of which cards you’re eligible to apply for.
Prequalification may involve a soft inquiry of your credit history, which doesn’t affect your credit score. If you decide to formally apply for the credit card, the issuer will do a hard inquiry, which could cause your credit score to drop. The application is what will determine if you actually qualify for a card.
Understanding preapproval
If you’ve been preapproved, the credit card issuer has done a prescreening to determine your creditworthiness. Preapproval, sometimes called preselection, is usually initiated by a credit card company for a special introductory offer for a specific card.
As part of that process, some card issuers may work with a credit bureau to make sure they’re only extending preapproval to those whose odds of being approved for the credit card are high. Often, the criteria for preapproval are a little stricter than those for consumer-initiated prequalification, but again, this depends on the issuer.
Preapproval for credit cards can involve a soft or hard credit inquiry, and can vary by credit card company. For those that conduct a hard inquiry, it could impact your credit score.
Does preapproval vs. prequalification matter?
Often, preapproval is a stronger indicator that you will be approved for the credit card, which may be important if you’re worried about the impact of hard inquiries on your credit score — you can apply for credit with more confidence that you’ll get the card.
Neither preapproval nor prequalification is a guarantee, but both can help you determine how likely you are to get final approval for the card. Don’t assume and start applying for credit card offers because you think that a prequalification or preapproval means you’re approved. You want to make sure you’re careful with why you’re applying for credit and how you plan to use it.
The credit card prequalification process explained
During the prequalification process, credit lenders are trying to determine whether to trust you with credit — how likely are you to maintain your balance or make payments? The credit card issuer will gather basic information about your financial situation, like:
- Your annual income
- Your housing costs
- Your general savings
Sometimes, credit card issuers will use Social Security numbers to pull this information from a credit bureau to send out prequalification offers to potential customers. But it’s more common for the customer to initiate the prequalification process before applying for a credit card — like with store credit card offers. It’s important to provide the most accurate information as possible, even if they’re not asking for much, so that the credit card issuer can make an accurate assessment of your creditworthiness.
The benefits of prequalifying for a credit card
One of the biggest benefits of getting prequalified for a card is determining if you should even apply for the card. Getting prequalified for a card can help remove the card options that you can’t qualify for, which can help you narrow down your search for the right credit card to fit your needs.
If you apply for every card possible, on the other hand, your credit score could take a serious hit. By selectively applying for cards you know you have a chance at, you can avoid unnecessary hard inquiries on your credit.
Where do you find prequalification offers?
If you’re looking for a prequalification offer, it’s important to remember that not all credit cards use prequalification or preapproval. But there are several ways to find offers:
- Check your mail. Prescreened offers can be delivered to both your mailbox and your inbox, so you might not have to look far to find one. But before you choose to apply for one of these cards, make sure the offer is legit — if you don’t recognize the credit card issuer, do a little research before applying.
- On the internet. Some third-party financial comparison sites offer online tools to help you check to see if you’re prequalified for offers from the site’s partners. Just like with other prequalification offers, there’s no guarantee you’ll be approved if you choose to apply.
- Credit card company websites. If you know there’s a company or card you’re interested in, consider going directly to the source. Many credit card issuers have tools on their websites to help you determine if you’re prequalified.
Doing a little legwork to determine all your options can help you be sure you’re applying for a credit card that matches your financial needs — and getting the best deal.
Which prequalified offer is right for you?
Using a credit card issuer’s online tool to determine your prequalification status can help you explore all the options that are available to you. This will also help you assess each card’s pros and cons, like features, benefits, and fees.
You’ll want to compare those against your own needs and how you plan to use the card. For example, if you’re a frequent traveler, a card offering miles to use towards airfare might be helpful. Some cards offer cash back on the purchase of certain goods or services, which might benefit you.
But don’t just be concerned about what your card can do for you. You also need to be aware of how much you’ll be paying for those benefits. It’s a good idea to compare not only rewards programs but also things like interest rates, fees, and other terms. A high interest rate could end up costing you more money than you save in benefits or perks, for example.
Prequalified but denied? What to do next
Remember, getting preapproved or prequalified isn’t a rubber stamp — there’s no guarantee that you’ll be approved for the card if you choose to apply. But even if you aren’t approved, you may be able to improve your credit so that you’ll be eligible for a card in the future.
Why was my credit application denied?
During prequalification, most credit card issuers are only doing a soft pull of your credit history, so they don’t have all the details they’d need for final approval. For example, it’s possible that your credit score was high enough for preapproval, but when you apply for the card the credit card issuer determines your income isn’t high enough to qualify.
Other common reasons to be denied for a prequalified offer could be a poor credit history — for example, maxing out your credit cards or not paying your bills on time — or a poor debt-to-income ratio. If you apply for too many cards in a short timeframe, it could affect your credit score and you could get turned down.
Tips for improving your creditworthiness
If your application for a credit card is denied, issuers are required to provide an “adverse action notice” explaining why you were turned down. It’s a good idea to review this statement to determine what you can do to boost your chances of getting a card.
Here are a few other ways you may be able to increase your creditworthiness:
- Improve your credit score. Dispute any inaccuracies on your credit report and focus on making positive changes that can impact your score — pay your bills on time, don’t carry a high balance on existing credit cards, try to avoid opening too many credit accounts in a short period of time.
- Establish credit. If your score is low because you simply haven’t used much credit in the past, consider applying for a credit card designed for people who are trying to build their credit. These cards often have more lenient eligibility requirements and low credit limits, which can help you show that you can use credit responsibly.
- Show adequate income. Credit card companies want to make sure you earn enough money to make the required payments for your card. If your income is low, you might not be approved. How can you improve your odds? Make sure you list all sources of income on your credit application, including salaries for full-time, part-time or seasonal jobs. You also could consider asking a trusted family member to co-sign for the card or add you as an authorized user on the account.
Key takeaway
Receiving preapproved or getting prequalified for a credit card is usually a good thing; it shows you have met the basic requirements for the card, like credit score or income. But just because you’re prequalified doesn’t mean you’re a shoo-in for the card — you still have to apply for the card, and some credit card companies have different processes to determine your creditworthiness. Prequalification usually involves a soft inquiry on your credit report, which won’t impact your credit score, but applying for new credit generally requires a hard inquiry, which could cause your scores to dip. That’s why it’s important to use preapproval or prequalification offers to help you select which cards to apply for.