Seeing if you’re prequalified is a common first step to applying for a new credit card. It’s a way to evaluate potential credit card offers and see where you stand based on your credit profile before you take the risk of submitting to a credit check.
But a lot of people misunderstand what it means to be prequalified for a credit card, and credit card companies are all too happy to perpetuate that confusion.
In this guide, we’ll show you exactly what prequalifying actually means (and how it’s different from “pre-approval”), how to see if you’re prequalified for a credit card and what to do when you see a prequalified offer.
What Is Prequalifying for a Credit Card?
“Prequalifying” for a credit card is a way of seeing which credit cards you have a chance of receiving if you apply and at what interest rates and credit limits. Prequalified offers aren’t official offers of credit and you can’t start in with your online retail purchases right away. They’re just a way for credit card issuers to market their products and encourage likely creditworthy borrowers to apply.
Card issuers don’t know what’s in your bank accounts and they don’t look at your credit score or credit report from a credit bureau for prequalification. Instead, they do what’s called a soft credit inquiry, where they use your Social Security number to pull basic credit information about you, including employment status, total annual income, assets and monthly debt payments.
In some cases, you won’t even enter a Social Security number. You can just give a lender or comparison site information about your financial situation and see prequalified offers.
Seeing if you’re prequalified for a credit card can be a useful step before officially applying for credit, especially if you have a poor credit score, fair credit score or a lot of outstanding debt.
Being prequalified isn’t a guarantee of approval, and you’re not likely to receive the exact terms listed in your prequalified offer. But this step can help you avoid applying for credit and submitting to a hard credit inquiry in situations when you’re not likely to be approved.
Prequalification vs. Preapproval
Prequalification and preapproval are often conflated, but they’re not the same thing. Prequalification is a very early step in the credit application process that gives you a broad idea of the type of credit card or loan you might qualify for. Preapproval is further down the line and is an assurance from a lender that you can qualify for a type of credit or loan based on your actual credit profile.
The Consumer Financial Protection Bureau (CFPB) shares a clear distinction between prequalification and preapproval: Preapproval requires that the financial institution evaluates your credit using the same method it uses to make a credit offer; prequalification may, but isn’t required to, use the same comprehensive process.
When you compare credit cards and other lending products online, or you get an ad in the mail inviting you to apply for a credit card, that’s almost always prequalification, not preapproval — even though some credit card issuers and lenders unethically use the phrase “you’re preapproved” in their marketing. An actual pre-approval requires a hard credit inquiry, which you have to agree to let the lender make because it affects your credit. If you haven’t agreed to a credit check, you’re no closer to approval, regardless of the language a company uses.
Preapproval typically only happens for installment loans, most often with mortgages. It’s not a guarantee of approval — it’s a step before approval — but it’s a stronger sign that you’ll be approved if you apply for a loan.
Often, if you’re in the market for a house, you can work with a bank or lender to get a letter of pre-approval that certifies that you’d be able to qualify for a mortgage of a certain amount. Buyers use those letters to ensure real estate agents and sellers that they can afford the monthly housing payment for the homes they’re shopping for.
Does Checking If You’re Prequalified for a Credit Card Hurt Your Credit?
Seeing if you’re prequalified for a credit card doesn’t affect your credit. Prequalification requires only a soft inquiry into your finances and credit history, so it won’t show up on your credit report as a request for new credit — the line item on your credit file that could temporarily hurt your credit score.
The CFPB doesn’t require financial institutions to report prequalification requests the same way it requires them to report pre-approval requests or applications for credit.
Be careful as you compare credit cards and evaluate offers not to submit to a hard credit check before you’re ready. This is usually pretty clear as you’re browsing, but be aware of what to look for so you know which stage you’re at in the process.
Before you submit an official application for credit, you’ll be asked to agree to let the lender run a credit check. That’s when they’ll run a hard credit inquiry and ping your credit report. Before that, you’ll usually see prompts to “see prequalified offers” or something similar, and the site will be clear that this doesn’t affect your credit score.
Agreeing to see prequalified offers isn’t an official application for credit, and it won’t hurt your credit score — whether you do it through an individual credit card company or through a comparison site.
Will You Get Approved If You Prequalify?
Prequalifying for a credit card doesn’t give you guaranteed approval. Prequalification is just a way to see card offers you’re likely to be approved for because of the information you shared. Your next step is to choose an offer and apply.
When you put in the official application for a credit card, the card issuer will run a hard credit inquiry and request your credit report from a bureau, then calculate your creditworthiness based on its preferred formula (which could follow FICO, Vantage or something else). Based on your score and the rest of your credit profile — including your income and outstanding debt — the card issuer will make a decision whether to approve or decline you for the card and at what interest rate.
It’s not uncommon to see a prequalified offer at a low interest rate for a loan or credit card and receive a different offer after you apply. That might be intentional on the part of the credit card companies to entice you further into the process, or it might be the result of the imprecise nature of prequalification.
How to See If You’re Prequalified for a Credit Card
Several sources can tell you if you’re prequalified for a credit card, including:
Marketing from credit card companies: The classic way to be prequalified is to receive a letter in the mail from a credit card company that tells you you’re prequalified. (As mentioned above, it might say “preapproved,” but that’s not accurate under CFPB regulation.) This is a pretty loose prequalification, since you never gave the company any information. It might have chosen your address based on information like median household income or other demographics in your area, or it might just be sending marketing materials to anyone. This kind of prequalified offer isn’t a useful indication of your ability to be approved for a credit card offer.
Advertising supported comparison service: Most marketplaces that let you compare several prequalified credit card offers side by side are supported by ad money from those credit card companies. They’re more useful than mailers, because you have to enter information about your finances to see prequalified offers. These services can help you quickly see whether you have a chance to get a credit card with your credit profile. But they rely on advertising support from credit card companies (you use the service for free), so they’re not impartial. Some sites let lenders pay ad fees to appear higher or more often in searches, which could affect how likely you are to see an offer regardless of your credit. Some sites only get paid by advertisers after you sign up for a card, which is a little better but could still sway how often offers appear in searches.
Direct prequalification with credit card issuers: Most credit card issuers let you see if you’re prequalified directly on their site. This is more work than using a comparison service, but it guarantees you’ll see whether or not you prequalify for cards with that issuer, unaffected by an advertising relationship. It’s not a stronger guarantee of approval, though.
What to Do If You Prequalify
After you see that you prequalify for a credit card offer, your next step is to apply for the offer. If you’re doing it online, this application process is usually pretty easy. The card issuer or comparison tool can use the information you already entered, plus your Social Security number if you haven’t shared it already, and run a hard credit inquiry.
When you agree to a credit check and move forward with the application, you’re applying for a single credit card offer. Read the details of the prequalified offer to make sure you’re choosing the one you want, especially if you’re browsing several offers with a comparison tool.
After the credit check, you may receive an instant decision from the card issuer. If you’re immediately approved, you’ll receive your official offer with credit terms that include your interest rate and credit limit. You’re not obligated to accept this offer, so don’t sign up if the terms turn out to be less favorable than you expected. Just know that if you apply for another offer, that’ll be another hard inquiry on your credit history.
If you want to accept the offer, you can sign up online and usually get a digital card number you can start using right away, with a physical card coming a few days later through the mail.
Some applications require additional information, like proof of income. In that case, you won’t get an instant credit decision, and the card issuer will follow up with you via email or phone to verify the additional information before making a decision.
How to Improve Your Chances of Being Prequalified
Being prequalified for a credit card is fairly easy, so don’t put too much weight on it. Remember, you could receive a prequalified offer in the mail without giving a credit card company any of your information at all.
Still, being prequalified in some cases can be a sign that you’re more likely to be approved for credit, so this process is a great test when you’re working on improving your credit score. Seeing if you prequalify is a smart step to take before submitting to a hard credit inquiry and being denied for a credit card.
Getting prequalified offers doesn’t impact your credit score, so it doesn’t hurt to check out your chances in a few comparison tools to see where you stand. Be aware that this could open you up to getting emails or phone calls from credit card companies that want to entice you to apply — unsubscribe and tell them you’re not interested if you want the marketing to stop.
Per the CFPB, you’re entitled to receive your credit report for free every 12 months from each of the three major credit reporting bureaus, TransUnion, Experian and Equifax. You can request all three at once or stagger than throughout the year. You can request a free report through AnnualCreditReport.com — this is the only free credit report site regulated by federal law.
Your credit report won’t include your credit score. It’s useful for other reasons: It lets you see everything reported in your credit history, so you can see whether anyone has opened credit or taken out a loan fraudulently in your name. It’ll also show you the factors affecting your creditworthiness, so you can make a plan to improve it.
To see your free credit score, use a private service, including:
Credit Sesame or CreditKarma, both sites that show you VantageScore credit scores and break down the items on your credit report.
Your current credit card issuer, which may show you your FICO score.
FreeCreditReport.com by Experian, which gives you your Experian credit report and FICO score.
Note that a credit card issuer might not use the same formulas to assess your credit as any of these services. They’re likely pulling your information from one of the three bureaus, but many companies use proprietary credit scoring models rather than FICO or VantageScore to determine your creditworthiness.
You might discover your credit score doesn’t fall in the range most credit card issuers want to see (cards for excellent credit, they want to see 720 or above; some issuers make offers to borrowers with fair credit down to 660 or so). In that case, take steps to raise your credit score, including:
Open a secured credit card, a card you can open with a security deposit as low as a couple hundred dollars. They usually give you a credit limit equal to your deposit but may make a different offer based on your credit.
Use a credit-builder account, similar to a secured card. Banks including Chime and Varo offer credit-builder cards that let you start with any deposit amount and repay your balance in installments to build a credit profile.
Pay off outstanding debts, if you have the resources, to clear them from your credit report and reduce your total monthly debt obligations.
Increase your income to reduce your debt-to-income ratio, which impacts your approval odds and terms.
Settle debts with collections agencies to pay them off quickly or at least get up to date on monthly payments.
Check your credit report and dispute any charges or requests for credit that you didn’t initiate.
Negotiate payment terms for medical debt with your providers to avoid having bills sent to collections.
Prequalification: Information, Not a Guarantee
Seeing if you’re prequalified for a credit card offer can be useful information in your quest to open a new credit card or build your credit history. But nothing can guarantee approval for credit — or receive a particular offer — until you receive an official offer and sign the credit card contract.
Use prequalification as a way to see what kind of credit card offers are out there and to determine your approval odds based on your credit profile. If you don’t see prequalified offers? That’s a great sign to keep working on your credit before submitting an application.
Contributor Dana Miranda is a Certified Educator in Personal Finance® who has written about work and money for publications including Forbes, The New York Times, CNBC, Insider, NextAdvisor and Inc. Magazine.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.