Prequalification

Prequalification summary:

• Prequalification is an informal assessment to determine if you might qualify for a loan.

• Getting prequalified doesn’t affect your credit scores.

• When you apply for prequalification, the lender might ask you about your income, housing payment, and estimated credit score.

Prequalification definition and meaning

Prequalification is an informal assessment of whether you qualify for a personal loan or other financial product, and at what terms. You provide basic information to the lender, but they don’t check or verify it. 

The lender or other entity takes a cursory look at your credit and finances to assess your creditworthiness. Prequalification doesn't involve a hard credit check or guarantee approval for a loan.

Lenders can use prequalification to determine if you may be eligible for a loan. For example, if you've ever received a pre-approved credit card offer in the mail, that's one type of prequalification. 

You could prequalify for a loan but not be approved for one. Final approval typically requires a full credit check and review of your credit scores. 

More about prequalification

Prequalification is a way to gauge whether you meet some of the criteria to be approved for a loan or line of credit. When you shop for financing—whether it's a mortgage, car loan, or personal loan—the lender may offer the option to get prequalified with a soft credit check before you apply. 

A prequalification offer doesn't mean you're approved for a loan. You'll still need to fill out a full application and agree to a hard credit check. 

Prequalification could, however, give you an idea of which loans you might be able to get and what you'll pay to borrow. 

How prequalification works

When a lender prequalifies you, they typically base their decision on information you provide. For example, you may be asked to fill out a short form that includes your:

• Annual or monthly income

• Monthly housing payment

• Estimated credit score range

That last point is particularly important as credit scores are central to most loan decisions. Your credit score is a three-digit number that measures your financial health. The higher your score, the easier it is to get approved. 

Prequalification doesn’t require a hard credit check. A hard credit check happens when a lender or another entity checks your credit history after you apply for a new credit account.   

When you're prequalified, a lender may perform a soft inquiry instead. Soft inquiries (also called soft pulls), including when you check your own credit, don't affect your credit scores. 

It’s a great idea to get prequalified early on when you start thinking about getting a loan so that you’ll know whether your financial plans are realistic or if you need to do some more work to prepare.

Prequalification vs. pre-approval

Prequalification and pre-approval are often lumped together, but they don't mean exactly the same thing. 

Pre-approval means a lender has done more research into your financial situation to decide whether you qualify. With some lenders, pre-approval is an offer to lend, assuming nothing in your credit file or financial situation changes before you finalize your application and close on your loan. Again, pre-approval is not a guaranteed approval, but it does indicate that you meet the lender's requirements for a loan. 

If you have the choice to get prequalified vs. pre-approved, pre-approval tends to carry more weight.