Does prequalification affect my credit score?

If you’re shopping for a new loan or credit card, you’ve probably come across the term prequalification. Many banks, credit unions, and online lenders use prequalification offers to encourage you to apply for their loan products. But what exactly is prequalification? Can it affect your credit score? In this article we’ll look at how prequalification works and what it means for you.

Here’s what we’re going to cover:

• What is prequalification?
• Does prequalification affect your credit score?
• How to prequalify for a personal loan or a credit card
• Oportun: Affordable lending options designed with you in mind

What is prequalification?

Prequalification is a credit estimate made by a lender based on your financial situation. To determine your eligibility for a loan or credit card, the lender will typically make a soft credit inquiry. The information they receive allows them to estimate loan amounts and interest rates for you. They can then tell you what loans or credit cards you are likely to qualify for.

Here are a few things to keep in mind about prequalification.

Prequalifying is not the same as applying for credit

Even if you’ve been told you prequalify for a loan or credit card, you’ll still need to submit a formal application.

Preapproval is different as well

Prequalification does not require documentation, where preapproval does. Prequalification is not a commitment on behalf of the borrower nor the lender. Preapproval is a conditional commitment by the lender.

Prequalification is not a guarantee of approval

If you prequalify for a loan, there’s a good chance you will be approved for it if the information you provide in the prequalification process is accurate. But you won’t know for certain until you submit an application and get an answer from the lender.

Prequalification helps you rule out products you’re not eligible for

If your prequalification request is turned down, it means you probably won’t be able to get that credit card or loan. This is a good way to narrow down your choices.

Prequalifying for a loan or credit card doesn’t necessarily mean it’s a good offer

Prequalifying for a loan or credit card doesn’t commit you to anything. You’ll still want to look closely at the product before deciding whether you want to apply for it. Some things to consider include the interest rate, the size of the loan credit line, how it’s repaid and whether you can afford the payments, what fees are involved, and others.

Does prequalification affect your credit score?

Requesting prequalification won’t hurt your credit score. When lenders look at your financial information in this process, they do a soft credit check. This lets them see your credit history without affecting your credit.

However, when you actually apply for a loan or credit card, the lender will conduct a hard credit inquiry. This is a complete review of your credit history to help lenders better understand your ability to pay back what you borrow.

Hard inquiries can temporarily knock a few points off your credit score, and multiple inquiries can cause a bigger drop. This is where prequalification can help you: You can limit your applications to only those loans or credit cards you prequalify for. Fewer applications will have less impact on your credit score.

How to prequalify for a personal loan or a credit card

The process and requirements for prequalification differ from one lender to another. Some offer prequalification to anyone interested. Some lenders may offer it to promote new products. Others may allow only their existing customers to prequalify. You can visit a lender’s website or call them to learn more.

With many lenders, you can request prequalification online. Filling out the form may take only a few minutes, and you can often find out right away if you’re prequalified.

Oportun: Affordable lending options designed with you in mind

Now that you understand prequalification, you can learn about how Oportun may be able to help you if you’re looking for affordable credit options. Visit our homepage to learn about:

• Personal loans
• Secured personal loans
• Savings
• And more!

Sources

Experian. What is prequalification?

Investopedia. Pre-qualification: What it means, special considerations

Forbes Advisor. How to pre-qualify for a personal loan