Does Prequalification Affect Your Credit Score?
6 Min Read | Published: October 3, 2024
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Learn how prequalification for loans or credit cards can impact your credit score. See situations where it could make sense to get prequalified.
At-A-Glance
- Prequalification for loans or credit cards can be a good way to gauge your eligibility for approval.
- Prequalification is typically a soft credit check, which will not impact your credit.
- However, the exact definition of prequalification and the prequalification process itself can vary from lender to lender.
Prequalification, whether it’s for a mortgage, auto loan, or credit card can be an easy way to gauge your eligibility. One of the benefits of prequalification is that it can typically be done with no impact on your credit score. However, it’s important to keep in mind that the definition of prequalification can vary from lender to lender. This article will explore the impact that prequalification could have on your credit score and highlight scenarios where prequalification could make sense for you.
Can Prequalification Affect Your Credit?
Prequalification typically does not affect your credit score. That’s because prequalification is usually considered a soft credit inquiry. However, it’s always best to check with your lender first to verify that this is the case.
A soft inquiry happens when a lender checks your credit score and report to get an idea of how well you’re managing credit. A hard inquiry, on the other hand, is a deeper dive specific to the loan or credit card you’re applying for. Hard inquiries can affect your credit score, although their impact is typically minimal.1 Learn more about the difference between hard inquiries and soft inquiries.
You can shop around for prequalification offers from multiple lenders without worrying about negative effects on your creditworthiness. Once you proceed with a formal loan application, the lender will typically conduct a hard inquiry at that time.
When to Consider Prequalification
There are a number of situations where you may want to consider getting prequalified before applying for a loan or credit card.
The main benefit of prequalification is that typically, it allows you to gauge your eligibility before moving forward with a financial product, and a potential hard credit check. This can help to save you from having multiple hard credit inquiries, which could in turn negatively impact your credit score. Prequalification may also give you an estimate of how much credit you may be eligible for, which can help you plan and create a budget.
- Mortgages
A mortgage is one loan that you may want to get prequalified for. With a mortgage, a preapproval offer could help to demonstrate that you’re more committed as a homebuyer, which could help your offers stand out.2 - Credit Cards
Credit cards are one product where prequalification or preapproval can help to narrow the field. Some credit card prequalification offers may be promoting a specific benefit, like a 0% introductory Annual Percentage Rate (APR) or no annual fee. These features can help you sort through offers and find a credit card that fits your needs best. - Auto Loans
Prequalifying for an auto loan is another example where prequalification can help. Prospective buyers can submit basic financial data like income and bank accounts to see if they meet the initial lending criteria.
Is Prequalification a Guarantee?
A prequalified or preapproved offer does not guarantee final loan or credit card approval, but it can be a key step in the process.3 These offers tell you that your credit profile meets the lender’s initial approval criteria.
Lenders perform preapprovals to determine whether any credit issues need to be addressed. To avoid disappointment, prospective borrowers should check their credit before applying. This allows you to take action to correct any errors that may be on your report with the respective credit bureaus. It also allows you to address potential issues that may be holding your credit back.
What to Do If Your Prequalification Is Denied
The underwriter can deny loans and mortgages, even if they were prequalified. If that happens to you, ask for a letter of explanation and speak with your loan officer about how to solve the problem. You can also check with other lenders, lower the amount you’re asking for, or find a co-signer with a stronger credit score (if that’s the issue) who could help put you in a stronger position to borrow.4
Frequently Asked Questions
These two terms are sometimes used interchangeably, but their exact definition may vary, depending on the lender or credit card issuer. Learn more about the difference between preapproval vs. prequalification.
Lenders send prequalification letters stating how much they will lend you. The borrower is not obligated to take the entire amount.
There are several reasons why an underwriter could deny your prequalified loan. Common reasons include a high debt-to-income ratio, a low credit score, or insufficient income.
The Takeaway
The initial soft credit inquiry performed by lenders to prequalify you for a loan or mortgage will not affect your credit score. Once you’re approved and decide to move forward with the offer, the hard credit check at this point could reduce your score slightly. This prequalification process varies from lender to lender, so read your prequalified offer carefully before proceeding to the next step.
1 “What’s the Difference Between a Hard and Soft Inquiry?,” Experian
2 “What Is the Difference Between Pre-Qualified and Pre-Approved Loans?,” Equifax
3 “Preapproved vs. prequalified: What’s the difference?,” Credit Karma
4 “Mortgage Loan Denied in Underwriting: Why It Happens and What To Do,” Lending Tree
Kevin D. Flynn is a financial services provider, business coach, and financial writer. He lives in Leominster, Massachusetts, with his wife Evelyn, two cats, and ten wonderful grandchildren.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
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