What’s The Difference Between Being Pre-Approved And Pre-Qualified For A Credit Card?
Have you ever received something that said you are “pre-approved” or “pre-qualified” for a credit card? Banks frequently send out emails and direct mail pieces claiming that customers are “pre-approved” or “pre-qualified” for a credit card, but what do these terms actually mean? It turns out these terms are used interchangeably in the credit card industry.
What it means to be “pre-approved” or “pre-qualified” for a credit card
The credit card industry is extremely competitive, and credit card issuers including banks and credit unions, will go to great lengths to acquire new customers. One of the ways they do this is by purchasing information in bulk from the major consumer credit bureaus. Card issuers are looking for potential new customers who meet certain criteria such as income, credit worthiness, and even geographic location. The major consumer credit bureaus will sell these card issuers a mailing list, which the card issuers can use to send out offers for specific products labelled “pre-approved” or “pre-qualified.”
Nevertheless, just because you received one of these offers, it doesn’t mean that you are guaranteed to be approved for this credit card. Receiving one of these “pre-approved” or “pre-qualified” offers simply means that you met the general criteria for approval at the time the credit card issuer purchased the list from the consumer credit bureau. To be actually approved for a new account, you will still have to apply for the credit card and have your application considered.
How you could be denied for a credit card that you have been “pre-approved” or “pre-qualified” for
After the card issuer purchased your contact information from the consumer credit bureau, it still had to generate an offer letter and send it to you. Then you had to complete the application and it had to be considered. During this time, the information from your credit report could have changed. For example, you may have incurred more debt or missed payments, causing your credit score to drop significantly. Another possibility is that you may have applied for a new loan or a new credit card elsewhere, which can affect your application for another new line of credit. In addition, you might have lost your job, declared bankruptcy, or had your home foreclosed. But more likely, you may have used information on your credit card application that differed from what was in the credit report, such as not reporting all sources of income.
Should you apply for a credit card that you’ve been “pre-approved” or “pre-qualified” for?
Just because you’ve received marketing literature stating that you’ve been “pre-approved” or “pre-qualified” for a particular card, it doesn’t mean that you should apply for it over other cards. There are dozens of credit card issuers and hundreds of different credit cards being offered to consumers, and those with high credit scores are likely to be approved for most of these cards.
It is up to you as the credit card applicant to choose the best card card for you needs, rather than having a random credit card issuer select you. When you receive a “pre-approved” or “pre-qualified” credit card offer that you are interested in, that can be a good place to start, but it’s only a beginning. You should take the time to look for the best credit card for you, which could be a different product from the same credit card issuer, or a card from a different company.
For example, you might receive a “pre-approved” or “pre-qualified” offer for a card with a low interest rate. And while it might be a very competitive product, those who avoid interest charges by paying their monthly statement balances in full will not have a need for such a card. Likewise, those who carry a balance should be uninterested in a reward credit card, no matter how good, since reward credit cards will always have a higher standard interest rate than similar cards that don’t offer rewards.
Does being “pre-approved” or “pre-qualified” for a credit card hurt your credit score?
The idea that credit card issuers are making inquires to your credit report without your permission can be concerning. Certainly, it can have an effect on your credit score when you apply for credit card or another type of loan. This consumer initiated inquiry is often called a “hard pull,” and several hard pulls in a short period of time can have a detrimental effect on your credit score.
In contrast, the bulk data purchases used to create “pre-approved” or “pre-qualified” offers are referred to as a “soft pull,” similar to consumer requests to view their own credit reports. Thankfully, it doesn’t matter how many soft pulls you have, since it will never hurt your credit score.
“Pre-approved” or “pre-qualified” sound like very important financial terms, but when it comes to credit cards, they aren’t that significant. By realizing how little weight these terms carry, you can largely ignore these offers and focus on the ones that make the most sense for your individual needs.