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In this article:
- What Does Prequalified Mean?
- What Does Preapproved Mean?
- Prequalified vs. Preapproved
- Do Preapproval and Prequalification Offers Impact Credit Score?
- Can I Opt Out of Credit Card and Loan Offers?
The difference between preapproval and prequalification can depend on the creditor and the type of loan or credit card—some creditors may even use the terms interchangeably.
In either case, a creditor has done an initial assessment to determine if you'll likely get approved for a new loan or credit card. It may then offer you potential interest rates, terms and loan amounts based on the assessment.
Prequalification tends to refer to less rigorous assessments, while a preapproval can require you to share more personal and financial information with a creditor. As a result, an offer based on a prequalification may be less accurate or certain than an offer based on a preapproval.
What Does Prequalified Mean?
Prequalification means the creditor has done at least a basic review of your creditworthiness to determine if you're likely to qualify for a loan or credit card. Consumers may initiate this process when they submit a prequalification application for a loan or card.
Requirements for prequalification can vary depending on the situation. It may involve sharing basic information about your financial situation, such as your annual income, monthly housing payment and savings. For some prequalifications, lenders will check your credit through a soft inquiry—the type of inquiry that doesn't impact your credit scores.
Once you're prequalified, you can choose to apply and undergo a complete review process. The review may require you to submit official documents, rather than estimates, and agree to a hard credit inquiry, which can impact your credit scores.
Getting prequalified doesn't guarantee an approval. But if you're able to apply for prequalification with a soft inquiry (or no inquiry), it's generally a good idea. If you get denied at this stage, you'll know you can move on and avoid the hard inquiry that accompanies a formal application.
What Does Preapproved Mean?
Getting preapproved may be a better indication that you'll get approved for a loan or card—but it depends on the process. For example, if you're preapproved for a credit card online, the card issuer may be using preapproved and prequalified to mean the same thing.
Additionally, you may have received preapproval offers for loans or credit cards by mail, phone or email. These prescreened offers generally mean you appeared on a credit reporting agency's list of consumers that meet a creditor's criteria, and have been sent a firm offer of credit as a result.
If you respond to the offer and apply, the creditor must offer you the same terms as in the mailing. But those terms may have a range, and you won't know your exact offer until you apply and agree to a hard inquiry. In some cases, the lender may decide to decline your application once they have a chance to thoroughly review your credit report, credit scores and the information you provided in your credit application.
Whether you applied or received an unsolicited offer saying you're preapproved, there's still no guarantee you'll get approved—especially if factors like your income, collateral or credit history have recently changed.
Mortgage and car loan preapprovals, however, are different from preapproval for other types of credit and can involve a fairly complex application and review process. You may need to submit tax returns, proof of income and bank statements and agree to a credit check. The mortgage or auto lender could take some time to review and verify these documents, and they may then offer you a loan preapproval letter that's good for several months.
Prequalified vs. Preapproved
Neither prequalification nor preapproval are a guarantee that you'll ultimately qualify for a loan or credit card. In the case of credit card offers, prequalification and preapproval are terms that are often used interchangeably by lenders. When it comes to loans, here's how prequalification and preapproval compare.
| Prequalification | Preapproval |
|---|---|
| If a credit report is reviewed, typically results in a soft credit inquiry | Typically results in a hard inquiry |
| Review of basic information, such as income and credit | May be an in-depth review of tax returns, income, bank statements and credit |
| Does not guarantee approval | Does not guarantee approval |
| May be less accurate than a preapproval offer | May be more accurate than prequalification |
| Can help you weigh your options before applying for credit | Can be the first step to securing a loan approval letter for a mortgage |
| Results are often instant | May take days for manual review to complete |
Do Preapproval and Prequalification Offers Impact Credit Score?
With credit cards, neither prequalification nor preapproval offers will impact your credit scores because with either process, if there's a credit check, the credit check usually results in a soft inquiry. Auto loans and mortgages are different, however, and will typically result in a hard inquiry on your credit that may hurt your credit scores. Fortunately, if it does, it's often a small impact that only lasts for a few months, although the inquiry itself will remain on your report for two years.
Also keep in mind that if you're rate shopping for an auto or home loan, credit scoring models will treat all hard inquiries as one if made in a 14-day period (some models allow up to 45 days). So assuming you are shopping around for the best rate with different lenders within a short period of time, your credit will suffer little, if any, damage.
Can I Opt Out of Credit Card and Loan Offers?
Yes, you can opt out of these offers. If you're receiving prescreened credit or insurance offers, you can opt out for a five-year period or permanently by calling 888-567-8688 or visiting OptOutPrescreen.com. It can take up to 65 days for you to stop receiving these offers once you opt out.
Opting out will stop offers sent based on information in your credit report, but it won't stop all forms of prescreened offers. For example, some companies send offers based on marketing lists or mass mailings to residents of certain areas. You may be able to opt out of those lists by directly contacting the company that sent you the offer.
Rate Shop Without Hurting Your Credit
If you're looking for a loan or credit card, getting prequalified or preapproved could be a smart first step. You'll know upfront whether you're likely to get approved or denied and can see your estimated rates and terms. You can also use prequalification tools, such as Experian CreditMatch™, to compare and find the best offers based on your credit.
As an expert in consumer credit and finance education, I bring a wealth of knowledge and experience to shed light on the intricacies of prequalification and preapproval in the context of loans and credit cards. My expertise is not merely theoretical but grounded in a deep understanding of the industry's nuances, regulations, and practical implications.
Let's delve into the concepts outlined in the provided article from Experian:
What Does Prequalified Mean?
Prequalification is the preliminary stage where a creditor conducts a basic review of your creditworthiness to gauge if you're likely to qualify for a loan or credit card. It involves sharing fundamental financial information such as annual income, monthly housing payment, and savings. Importantly, prequalification often entails a soft inquiry, which doesn't impact your credit scores.
However, it's crucial to note that being prequalified doesn't guarantee approval. It serves as an initial assessment, and if denied at this stage, you can avoid the hard inquiry associated with a formal application.
What Does Preapproved Mean?
Preapproval signifies a more advanced stage compared to prequalification. If you receive a preapproval offer, it indicates that you meet a creditor's criteria based on your credit report. This could be for credit cards, loans, or other financial products.
In the case of credit cards, preapproval and prequalification are sometimes used interchangeably. Responding to a preapproval offer and applying may lead to a hard inquiry, impacting your credit scores. However, approval is not guaranteed, as a thorough review of your credit report, scores, and application information is still required.
Prequalified vs. Preapproved
The terms prequalification and preapproval are often used interchangeably, especially in the context of credit card offers. However, in the realm of loans, they have distinct differences:
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Prequalification: Typically involves a soft credit inquiry, reviews basic information, and is less detailed. It does not guarantee approval.
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Preapproval: Usually results in a hard inquiry, involves a more in-depth review of financial documents, and may be a stronger indicator of approval compared to prequalification.
Do Preapproval and Prequalification Offers Impact Credit Score?
For credit cards, both prequalification and preapproval processes usually result in a soft inquiry, which does not impact credit scores. However, in the case of auto loans and mortgages, a hard inquiry is common and may have a temporary negative impact on credit scores. Notably, credit scoring models treat multiple loan inquiries within a short period as a single inquiry to minimize the impact.
Can I Opt Out of Credit Card and Loan Offers?
Yes, consumers can opt out of prescreened credit or insurance offers. By calling 888-567-8688 or visiting OptOutPrescreen.com, individuals can opt out for a five-year period or permanently. It's important to note that opting out won't cease all forms of prescreened offers, but it will halt those based on information in your credit report.
Rate Shop Without Hurting Your Credit
If you're in the market for a loan or credit card, utilizing prequalification or preapproval tools can be a strategic initial step. Platforms like Experian CreditMatch™ enable you to compare offers based on your credit, providing insights into potential approval, estimated rates, and terms without causing significant harm to your credit.
In conclusion, understanding the distinctions between prequalification and preapproval, their impact on credit scores, and the option to opt out of offers empowers consumers to make informed decisions in their financial journey.
