Jean Chatzky
You’ve probably gotten mail or an email inviting you to apply for a new credit card or loan. “You’re pre-approved,” one email says. “Congrats. You are pre-qualified for this new credit card,” a letter in the mail informs you. But what do these really mean? We’ll sort through it and provide some tips that could help you benefit from these offers.
How Do These Differ?
It’s important to read the description included in your offer to understand the likelihood of approval.
- Check the front and back of the envelope, and the back of the letter, down near the bottom, for the fine print. Read through the email offer carefully.
- Pre-qualified tells you that you may meet the lender’s general credit guidelines.
- Pre-approved lets you know that, based on what a lender sees, they intend to approve your application pending final verification.
What Pre-Qualified Means
Pre-qualified means:
- You met the general credit requirements based on a soft credit pull.
- Your approval odds are moderate.
- Approval is not guaranteed. You could be denied after a full credit review.
What is a Pre-Approval?
A pre-approved offer means a lender:
- Completed a deeper dive into your credit information and a soft credit pull.
- Indicated that you’re further along in the process, having passed internal checks and review.
- Thinks the likelihood of approval is high.
- Does not guarantee approval, but your approval odds are higher than pre-qualified offers.
Using Pre-Qualification Tools
Using pre-qualification tools is one of the smartest ways to shop for credit — especially if you have newer credit or are trying to protect your score. Think of pre-qualification tools as a filter to help minimize unnecessary credit dings.
Why it Matters
When you apply for credit, lenders typically perform a hard inquiry, which can temporarily lower your score. Multiple hard pulls can harm your score and make you look risky to potential lenders.
What to Look For
Most banks, credit unions, and lenders offer online pre-qualification tools through their websites or apps. Pre-qualification tools typically do the following:
- Run a soft credit pull
- Show your likelihood of approval
- Provide estimated APR ranges
- Show potential credit limits or loan amounts
When You Want Offers
There are times when you may want to see what types of credit offers financial institutions and credit card issuers are willing to send your way. Pre-qualification is especially useful if you’re doing the following:
- Shopping for a new credit card
- Comparing auto loan rates
- Trying to consolidate debt
- Exploring better rewards or lower APR options
Offers in Apps
Many financial institutions use a more targeted approach to reach customers through their:
- Online banking platforms
- Mobile apps
- Credit score tools
Look for “special offers,” “recommended for you,” and “Pre-qualified offers.”
Check out the personalized pre-qualified or pre-approved offers in SavvyMoney next time you log in to your online or mobile banking platform.
The Bottom Line
Pre-qualification tools allow you to explore credit safely. When used strategically, it takes the guesswork out of credit shopping. You’ll have greater visibility into your options, which will help you make informed financial decisions.
With reporting by Casandra Andrews
