When applying for a loan or credit card, you might see the terms “prequalified” and “preapproved” used a lot. They may seem similar, but they’re not the same. Understanding the difference is important especially when you’re trying to improve your credit score or qualify for the best interest rates.
In this guide, we’ll break down what each term means, how they affect your credit, and what to do if you receive one.
What Does Prequalified Mean?
When you’re prequalified, it usually means a lender has done a soft check on your credit. This is a quick glance at your credit history based on basic information you provided like your income, employment status, and debt levels.
It’s often used as a first step to see if you might be eligible for a loan or credit card.
Key Features of Prequalification:
- Based on self-reported information.
- Usually involves a soft credit pull (does not affect your credit score).
- Less detailed than preapproval.
- No guarantees you’ll be approved.
- You may see a range of possible interest rates and loan terms.
Example:
You visit a lender’s website, enter your income and credit score range, and get an instant message that you are “prequalified” for a $10,000 personal loan. But when you apply officially, you could be denied after a full review.
Pro Tip: Always double-check if the offer is prequalification or preapproval—lenders often use them interchangeably, but they’re not the same.
What Does Preapproved Mean?
Being preapproved means the lender has done a deeper look into your financial background, often using a hard credit inquiry. This is much closer to an actual approval and shows that you meet most of the lender’s credit criteria.
Key Features of Preapproval:
- Based on verified financial and credit information.
- Usually involves a hard credit pull (may slightly lower your credit score).
- You’ll see specific loan terms (amount, interest rate, etc.).
- Strong indication of final approval if your situation doesn’t change.
Example:
You apply for mortgage preapproval. The lender checks your full credit report, employment, and bank statements. You receive a letter saying you’re preapproved for a $250,000 mortgage at 6.2% interest.
This letter can be used when shopping for homes and proves to sellers that you’re a serious buyer.
Pro Tip: Preapproval letters are usually valid for 30 to 90 days. If your financial situation changes, the offer may change too.
Major Differences at a Glance
| Feature | Prequalified | Preapproved |
|---|---|---|
| Credit Check Type | Soft Pull (No impact on score) | Hard Pull (May impact score) |
| Accuracy | Based on estimated info | Based on verified info |
| Offer Guarantee | Not guaranteed | More likely to be approved |
| Level of Detail | Basic screening | In-depth review |
| Best For | Early shopping, rate comparison | Serious applications, house hunting |
Does Either Affect Your Credit Score?
- Prequalification: No, because it uses a soft inquiry, which doesn’t show up on your credit report.
- Preapproval: Yes, it often involves a hard inquiry, which can lower your score by a few points temporarily.
Which One Should You Go For?
It depends on your goal:
- Shopping around? Go with prequalification first. It’s quick, safe, and won’t affect your credit.
- Ready to apply seriously? Go for preapproval. It gives you stronger buying power and more accurate loan terms.
Why Lenders Send Prequalified Offers
Sometimes, you’ll receive a credit card or loan offer in the mail that says you’re prequalified. These offers are based on information from credit bureaus or marketing lists and are meant to attract new customers.
But even if you’re “prequalified,” you still need to submit a full application and may not be approved in the end.
Important: Prequalified mail offers are not binding. Always read the fine print.
Should You Trust Prequalified and Preapproved Offers?
Yes but with caution.
- Prequalified offers are useful for exploring your options, but don’t rely on them as a guarantee.
- Preapproval offers are more trustworthy, especially when you’ve completed an application process.
Just remember: final approval depends on the full underwriting process, your credit, income, and current financial situation.
Can You Be Denied After Being Preapproved?
Yes. Even with preapproval, things like:
- Job loss
- New debt
- Drop in credit score
- Missed payments
…can lead to a loan denial. Always keep your finances stable after getting preapproved.
Use Both the Smart Way
Here’s how to make the most of each:
- Start with Prequalification
Get a sense of your options without hurting your credit score. - Move to Preapproval
Once you narrow down your lender, complete a full application to get serious offers. - Check Your Credit Regularly
Use tools like Credit Karma or AnnualCreditReport.com to track your credit and spot errors. - Don’t Apply to Too Many Lenders at Once
Multiple hard inquiries can hurt your score. Shop around during a 14- to 45-day window to reduce the impact.
Key Takeaways
- Prequalified means you might get approved, based on general info.
- Preapproved means you’re likely to get approved, based on verified details.
- Prequalification uses a soft pull (no credit impact), while preapproval uses a hard pull (may affect score).
- Always review the fine print and keep your finances steady after preapproval.