Credit Sesame discusses the difference between credit card pre-qualification and pre-approval.
Credit card pre-qualification and pre-approval: What’s the difference?
Interested in applying for a particular credit card? You may be able to improve your chances of getting that plastic if you get pre-qualified and/or pre-approved for the credit card.
What’s the difference between credit card pre-qualification and credit card pre-approval? Which one is more important? How can you boost your chances of getting pre-approved or pre-qualified? Read on for more information and tips from industry experts.
Understanding credit card pre-qualification
There isn’t necessarily a hard and set definition for credit card pre-qualification, as it can have a different meaning depending on the credit card issuer. But in general, a pre-qualification means that, as a prospective applicant for that credit card, you have met initial eligibility criteria, such as a debt-to-income ratio or credit score.
“A pre-qualification typically involves a creditor performing a basic review of your credit history through a soft inquiry of your credit, which doesn’t affect your credit score, as opposed to a hard inquiry that can drop your credit score. It can also involve gathering other personal and financial information to determine if you are likely to qualify for a credit card,” explains personal finance expert Maya Nijhawan, co-founder/COO of Finch.
A pre-qualified offer can give you a better idea of whether or not you’ll get approved for a desired card with no impact on your credit. Armed with this knowledge, you’ll have more confidence in knowing that you will likely be approved. This can motivate you to complete an official credit card application, which will result in a hard pull of your credit.
A consumer often gets “pre-qualified” via special pre-qualified offers provided by certain credit card issuers. By visiting the websites of different credit card companies or receiving credit card opportunities via snail mail, you can find and take advantage of pre-qualified offers.
“A consumer can go online and answer a few questions to find out if they qualify for that card,” Michael Sullivan, a personal financial consultant for Phoenix-based nonprofit credit counseling agency Take Charge America, says. “This is a safer method of trying to get a new credit card without suffering through full rejections that can each reduce your credit score by four to six points.”
Understanding credit card pre-approval
Here’s where matters can get confusing: Depending on the credit card issuer, a pre-qualification can mean the same thing as a pre-approval.
“When it comes to credit cards, companies use these terms differently and often interchangeably, and that makes the distinction between the two extremely blurry,” notes Nijhawan.
However, some credit card companies use the term “pre-approval” for consumers who have met more stringent criteria than those who only pre-qualify for an offer.
“For instance, you may pre-qualify for a credit card because your credit score is 700. But you might not get a pre-approval if your income is not high enough or if you have too much debt,” says Andrew Latham, a certified financial planner and certified personal finance counselor in Rolesville, North Carolina.
“A true pre-approval process dives deeper into your creditworthiness and is a more meticulous process. It serves as a stronger signal than a pre-qualification that you are likely to be approved,” she adds.
What’s the difference between credit card pre-qualification and pre-approval?
Commonly, pre-qualification describes a less stringent vetting process that reviews your personal information and credit history. Pre-approval usually involves a more thorough screening of your financials and creditworthiness.
“The difference between the two in the role of each is a lot clearer when it comes to installment loans – such as a mortgage loan or auto loan,” Nijhawan continues. “In these instances, a borrower may obtain both a pre-qualification and a pre-approval as they make their way through the purchase decision. If you are buying a home, for example, a pre-qualification can give you a sense of how much you will be able to borrow at the outset, while a pre-approval enables you to make a firm offer. In this example, it’s better to be pre-approved than simply pre-qualified.”
Is it better to be pre-qualified or pre-approved for a credit card?
Imagine you are interested in applying for two similar credit cards. You pre-qualify for card #1 and are pre-approved for card #2.
“In this scenario, you might want to choose card #2 because your chances of getting approved for that card will probably be higher,” says Latham.
Sullivan echoes those thoughts.
“Being pre-approved implies that the credit card company has already screened and fast-tracked you for approval. Pre-qualification is more like applying to get into that group that the credit card company seeks to serve,” he comments.
However, being pre-qualified and/or pre-approved is no guarantee that you will ultimately get approved for that card after submitting an application. After receiving your application, the creditor could discover something in your credit history, for example, that disqualifies you from getting the card.
How to improve your chances of getting pre-qualified and pre-approved for a credit card
Every credit card issuer has its own pre-qualification/pre-approval requirements. But you can up the likelihood of getting pre-approved or pre-qualified by following best financial practices, according to Nijhawan:
- Pay your bills on time and pay the balance in full whenever possible. Consider that your payment history comprises 35% of your credit score. Setting up auto-pay of your credit cards and other accounts can help prevent missing payments.
- Keep your credit utilization low. Instead of waiting to pay your bills until the due date, target minimizing your balance as low as you can before your statement closing date. “This is the balance that will be reported to the credit bureaus. You should target keeping your credit utilization ratio – your amount owed divided by the amount available – below 30%. Paying off your accounts in this fashion will help boost your credit score,” she suggests.
- Check your credit reports for inaccuracies and errors. Visit com and carefully review your three free credit reports. Contact Experian, TransUnion, and Equifax if you notice any errors or inaccuracies and ask to have them fixed.
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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.