Pre-qualification refers to the evaluation of the creditworthiness of a potential borrower by a creditor to provide a pre-approval. Pre-qualifications typically estimate an offering amount of credit or provide the borrower with a pre-approval for a credit card.
Understanding Pre-Qualification Vs. Pre-Approval
Breaking Down Pre-Qualification
Pre-qualification is a popular marketing tactic for creditors seeking to obtain new customers. It is a relatively simple process that allows a creditor to contact a potential borrower with marketing materials advertising a product and a pre-approval for eligibility.
Pre-qualification and pre-approval are unique to the credit industry. They can be a successful and profitable marketing tactic that attracts customers through direct mail in the form of either letters or emails.
Creditors have multiple relationships with credit agencies that allow them to target certain types of borrowers and obtain soft credit inquiries for pre-qualification. Creditors will generally target borrowers by their credit score. Relationships with credit agencies allow creditors to obtain lists of potential borrowers in their target score range and to pull soft credit inquiries for determining pre-qualification offers.
Once a borrower has been pre-qualified for a credit product, they will receive a direct mailing from the credit issuer by physical mail or email. Creditors usually provide a maximum amount that the borrower can qualify for and a pre-approval code which gives them some preferential access in a credit application.
It is important to note that a pre-qualification amount or a credit card pre-approval is not a guarantee of credit issuance from a financial institution. Pre-qualification offers are simply estimates and marketing documents that can help a credit issuer obtain new customers. Therefore, borrowers need to have a good understanding of their credit score and credit profile. If a borrower decides to apply for a pre-approved deal, then the creditor will obtain a hard inquiry which provides more comprehensive information to the creditor and is reported on a credit report. Numerous credit inquiries and rejections can have a significant negative effect on a borrower’s credit score, decreasing their eligibility for obtaining credit in the future.
Checking for Pre-Approval
If a consumer is interested in obtaining credit, then utilizing a pre-approval can help to increase their chances of acceptance. If a borrower has not received a pre-qualification offer through a direct mailing, there are a few resources they can turn to for understanding if they may be pre-approved. Many creditors offer a pre-qualification tool which allows a borrower to obtain a pre-approval with a soft inquiry that does not affect their credit score. Credit One is one example. CreditCards.com is another source for obtaining pre-approval offers. Their credit matching tool provides free pre-qualifications from multiple credit providers allowing a borrower to compare products across issuers.