10
Nov

prequalified

Here’s a scenario you may be familiar with:

You’re contemplating opening a new line of credit. But you’re not quite ready to take the plunge and apply, because you heard that applying could put a ding on your credit score. Then you see the little sidebar suggesting an alternative:

“Check to see if you’re prequalified!”

But wait.

If applying for a credit card puts a black mark on your credit score, are there consequences to checking your prequalification?

Good news. The short answer is: no. Checking to see if you prequalify for a credit card has no negative impact on your credit.

Here’s everything you need to know about prequalification:

What is prequalification?

Prequalification is when a lender checks some of your basic credit information, like your credit score, to see if you’re a safe candidate for a new line of credit. You can get prequalified through online portals, like in the scenario above. Alternatively, if you got a letter in the mail from a credit card company saying you’ve been prequalified, it could be because a credit bureau provided them with a list of potential customers whose credit scores meet their criteria for prequalification.

A prequalification is considered a “soft inquiry,” which is why it doesn’t harm your credit score.

What is the difference between hard and soft credit inquiries?

A soft inquiry is when someone checks your basic credit information but it’s not directly related to being issued a new line of credit. (Another common example of a soft inquiry is when a potential employer checks your credit as part of a background check.) Since the prequalification process doesn’t actually involve an official application for new credit, it doesn’t qualify as a hard inquiry, and thus won’t have any effect on your credit score.

A hard inquiry happens when you apply for credit from a lender, who then pulls your in-depth credit history to determine whether to approve your application. Examples of hard inquiries include applications for credit cards, car loans, or mortgages. And while it’s true that these requests may lower your credit score, the penalty is usually not as severe as people tend to think. Each hard inquiry usually amounts to a few points off of your overall credit score.

But be careful not to trigger too many hard inquiries over a short period of time — not only do those points add up, but seeing that much short-term activity could raise the eyebrows of lenders, who might question your immediate need for cash.

Does prequalifying mean I’ll get approved?

No. You still have to apply for the credit line in order to be approved, which means subjecting your credit to a hard inquiry. And even if you’ve been prequalified, your application still may not be approved for any number of reasons. However, credit approval is more likely if you’ve been prequalified. So checking your prequalification may help reduce the risk of rejection, and thus reduce the risk of having to go through multiple applications (and hard inquiries) in order to get a new line of credit.

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