Pre-qualified vs. pre-approved credit: What are the key differences?

What’s the difference between pre-approved and pre-qualified?

When applying for credit cards, you’ll often see the phrases pre-qualified and pre-approved. These offers may sound similar, but key differences include who initiates the process and how firm the approval is once the application is completed. Let's break down what each one really means for you.

What does pre-qualified mean?

Prequalification is like a sneak peek for approval. It's a quick process where a credit card issuer performs a soft credit check to see if you might be approved for a card. This check allows the issuer to look at your credit report without affecting your credit score. You can do it with multiple card offers without any meaningful impact.

Think of prequalification as an invitation to apply. It means you meet some of the card's general requirements, but it's not a promise. The final approval decision is made after you submit a full application. That's when a credit check happens, which can temporarily lower your score.

How to prequalify

The prequalification process is simple and takes just a few minutes. Because it’s a soft credit check, you can do it without impacting your credit score. This gives you a risk-free way to explore your options before committing.

Here’s a quick overview of how it works:

• Find the tool: Look for a "check for prequalification" or "see if you're prequalified" link on a card issuer's website.
• Enter your information: You’ll be asked for basic details like your name, address, and annual income.
• Review your offers: Within seconds of submitting your personal information, you may be provided a list of cards you will likely be approved for.

Remember, this isn’t a guaranteed approval. It’s an educated guess. If you decide to move forward, you'll still need to complete a full application, which will involve a hard credit check that will likely impact your credit history.

Pros and cons of credit card prequalification

Prequalifying for a credit card lets you test the waters without a major commitment. But like any financial move, it has its upsides and its downsides. Here’s a quick look at what you can expect:

What does pre-approved mean?

Pre-approval means that a credit card company has already reviewed your credit profile, evaluated how you typically use your credit card, and decided you fit what they are looking for. It’s often called a "firm offer of credit" because it is a very strong signal that you will be approved.

However, receiving a pre-approved offer is not a 100% guarantee. The issuer will still perform a hard credit check when you apply. If something has changed in your credit report since their initial check, your application could still be denied.

How to get pre-approved

Pre-approval is not something you can actively seek out or request. Instead, it’s a proactive invitation from a card company, either by mail or email. This happens because your financial health caught their attention, and you fit their ideal customer profile.

So, getting noticed all comes down to building a strong financial reputation. The better your money habits (like saving money) are, the more likely you are to be on an issuer's pre-approved list.

Here are the key financial habits that get you on the list:

• Pay your bills on time: This is one of the most important factors for any credit decision, as well as paying off the minimum balance.
• Keep your credit utilization low: Your credit card balance should be well below your total credit limit. A ratio of 30% or less is generally a good target.¹
• Maintain a long credit history: Lenders like to see a track record of responsible credit use over time.
• Keep your information current: Make sure your address is up-to-date with the credit bureaus and financial institutions you do business with.

Pros and cons of credit card pre-approval

Receiving a pre-approved offer feels good. It’s a direct message telling you that you’re a great candidate for their credit card. While it’s a significant step up from prequalification, there are still a few factors to consider. Here’s a quick breakdown of what makes pre-approval a win, and what to watch out for:

Does credit card pre-approval or prequalification impact your credit?

Pre-qualifying or getting a pre-approved offer for a credit card does not affect your credit score. This is because these checks only involve a "soft inquiry" on your credit, which is a quick look at your credit report that is not visible to other lenders.

However, this isn't always true for every financial product. While a credit card pre-approval is a soft pull, pre-approvals for large loans like a mortgage or car loan can sometimes require a hard credit check. This is because lenders are making a much larger commitment.

It’s important to confirm with the lender what type of credit check they will perform before moving forward.

Flexible credit with PayPal

When weighing the benefits of pre-qualified vs. pre-approved credit cards, it’s important to note that it’s not an apples-to-apples comparison. While both typically involve soft credit checks, borrowers initiate prequalification, whereas providers initiate a preapproval.

Ultimately, the end goal is to find and be approved for a credit card that meets all your needs. If you want flexibility from your credit provider, to earn cash back, and to travel with ease, consider PayPal’s credit options.²

Learn more about PayPal's credit products.