Prequalification allows a credit card issuer to look at your basic credit information and decide if you're ready for a new card. Many credit card issuers allow applicants to prequalify, and during this process, you'll find out if you're likely to be approved for the card before submitting a full application.
For a prequalification, credit card issuers use limited personal information to perform a soft inquiry on your credit report. This inquiry does not affect your credit score and provides the issuer with basic credit information that it uses to determine whether you're likely to qualify for the card. If the information indicates you are a good fit, you'll be prequalified.
Although prequalification can be useful for consumers, you should keep in mind it's not a real application for credit. "It's essentially a way for card sites to get a bit of your personal information for marketing purposes, and it's not a reliable measure of your creditworthiness," says Barry Paperno, former FICO consumer affairs manager.
A prequalification is an issuer's educated guess and does not guarantee you will be approved for a particular card. However, you do have a good chance.
Prequalification is not the same thing as preapproval. Prequalification occurs when you submit your information to shop for credit card offers. Preapproval occurs when an issuer sends you an offer after determining you meet the requirements for a particular card. Neither affects your credit rating. Although prequalification is no guarantee, preapproval is more of a sure thing.
Prequalification is offered by most major credit card issuers, including American Express, Bank of America, Capital One, Chase, Citi and Discover.
Why You Should Prequalify for Credit Cards
Prequalification allows you to avoid fully applying for credit cards that are out of your league, says Erica Sandberg, personal finance expert with Sandberg Financial Education Services.
You want to avoid applying for credit cards with terms beyond your reach because, unlike the harmlessness of a soft inquiry for prequalification, an official application will require a hard inquiry on your credit. A hard inquiry can lower your credit score, especially multiple hard inquiries within a short period of time.
"Hard inquiries are listed on a credit report and factored into credit scores," says Sandberg. "It's a relatively minor scoring consideration at 10 percent, but too many in a short span of time will definitely drag those numbers down."
Improving Your Prequalification Odds
Knowing what issuers want to see throughout the process can make it easier to work on your credit profile so you're more likely to be prequalified for a credit card. Issuers consider information including:
-- Date of birth
-- Social Security number
-- Income and expenses
-- Debt load
-- Credit score
This data will be considered on a full application, but a full application looks deeper into qualifying factors. Requirements vary by issuer, but on a full application, you can expect to share additional information, including your country of citizenship and residence, how long you've lived at your address, whether you own or rent, your phone number, sources of income and financial assets.
Sandberg encourages consumers to secure their earnings before prequalifying. "Many people forget that having a job that provides a steady income is incredibly important to a credit card issuer or lender," she says. "After all, that money is necessary for you to comfortably pay your bill."
Your debt load is another important factor. You should pay off as much debt as possible before prequalifying or applying for a credit card. Wait until your statements close so your payments are reported to the credit bureaus.
What to Do if You're Not Prequalified
If your prequalification is declined, you may want to consider a credit card that has lower credit qualifications. Generally, a declined prequalification is a reliable indicator that you won't be approved with a full application. However, you can still apply for the card even if you aren't prequalified.
Apply anyway. Just as a prequalification is not a guarantee you'll be approved for the card, a declined prequalification doesn't always mean you can't get approved with a full application. A full application uses more information to determine your creditworthiness. This more comprehensive information , including your employment, salary and full credit report , may indicate better creditworthiness.
The only way to know for sure if you'll be approved or denied is to submit a formal application. However, you should keep in mind that a full application requires a hard inquiry, which will be reflected on your credit report and can impact your credit score.
Seek a different credit card. As you consider other credit card options, be analytical and look at why you were rejected, says Sandberg. You should adjust your target credit card based on your credit score, income and debt load.
[Read: Best Secured Credit Cards of 2018.]
If you're facing difficulty with prequalification, a secured credit card with a small credit limit may be right for you, says Sandberg. "With it, you can create a higher score and eventually, you may qualify for that incredible rewards card and huge charging limit," she says.
What to Do if You're Prequalified
Prequalification is just the start of the process when obtaining a credit card. Getting prequalified only tells you which credit cards you're likely to be approved for. You'll need to choose the right credit card and then fill out a full application before you can seek an approval and open your credit card account.
Compare credit card offers. Prequalification allows you to shop around for the best credit card offers that you can qualify for. You should seek prequalifications from multiple credit cards that interest you. Then, compare prequalified offers to determine which ones are the best for your needs.
Fill out a full application. Once you've determined which prequalified credit card is the best for you, fill out a full application for a formal approval. If you're denied, you can apply for another prequalified offer.
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