What does it mean to “pre-qualify” for a loan or a credit card?
If you’ve received a notice from a bank or other lender saying that you’ve pre-qualified for one of their products, it may sound like a firm promise that you’ll definitely get the loan or credit card if you apply. But getting pre-qualified for a financial product is far from a final decision about whether or not you’ll actually get approved for it. If you’ve been pre-qualified for a loan or credit card, you should think of it as a “soft yes” to your application, not a firm one.
That “soft yes” comes from a preliminary review of your personal and financial information, including a soft check of your credit. Because the bank or lender isn’t doing a detailed analysis of your credit, income, and debt-to-income ratio during the pre-qualification process, it is unable to say with certainty whether or not you’re definitely a good candidate for the financial product.
NerdWallet currently offers pre-qualification tools to help consumers better understand their likelihood of qualifying for certain financial products. Again, though, it’s important to keep in mind that getting pre-qualified for one of these products is not a guarantee that you’ll be approved by the lender when you submit your full application.
What’s the point of pre-qualifying for a loan or credit card? Why not just submit an application directly with a bank or lender?
Every time you apply for credit (think, loans and credit cards) a hard check of your credit is performed. This will give the lender you’re applying with a detailed look at your credit history, to help it determine whether or not you’re a good candidate for the product you’ve applied for. This can sometimes generate a firm yes or no decision about whether you’re approved within minutes of your application.
The drawback is that a hard check of your credit will cause your credit score to drop. For example, if you submit several credit card applications in a short period of time, hoping to get approved for one of them, this could have a substantial negative impact on your credit score.
This is where a pre-qualification tool can come in handy. You’ll submit a few basic pieces of information about yourself and your finances, and you can find out whether you’re pre-qualified for a credit card or loan based on that information. Since no hard check of your credit is performed in the process, you can get a sense of whether or not you’ll be approved for a product without losing any points on your credit score. This will help you make informed choices about which loans or credit cards you should submit formal applications for.
What are pre-qualification decisions based on?
Every lender is looking for different qualities in its borrowers, so there’s no hard-and-fast set of criteria that every lender is using when it makes a pre-qualification decision.
Generally, though, the bank or lender will need to review the following to determine if you pre-qualify for a personal loan or credit card:
- Your credit (based on a soft review of your credit report)
- Your income
- Your age and citizenship status
- Your other debts and monthly financial obligations
- Your employment status
- The reason you’d like to borrow (for personal loans)
I’ve been pre-qualified for a loan or a credit card. Now what?
If you’ve been pre-qualified with one of our partners, the next step is to finish the full application for the product you’re interested in. The steps for doing this are explained in the email you received that told you you were pre-qualified.
Just keep in mind that it’s still possible you’ll get rejected for the product. Again, pre-qualifying for a loan or credit card is not a guarantee that you’ll get approved when your full application for the product is reviewed by the lender.
What happens if I don’t pre-qualify for a loan or credit card?
If you haven’t been pre-qualified for a loan or credit card right now, there’s nothing else you need to do for the moment. You may receive what’s known as an “adverse action” notice from one of our lending partners with whom you did not pre-qualify, formally notifying you that your application was not approved. Don’t be alarmed if you receive an adverse action notice - again, it’s just a formality, and does not mean that a hard review of your credit was performed.
If you’d like personalized advice about how to prepare to pre-qualify, please send us a note on this page with as many details as possible about your financial status and the type of product you’d like to pre-qualify for. (To protect your privacy and security, we can’t see the information you entered on your pre-qualification form, so you’ll need to provide some details about yourself in your email). We'll be happy to help however we can!
You can also check out these resources for more help with improving your chances of pre-qualifying in the future: