Does Prequalification Affect Your Credit Score?
The analysis of your credit can be obtained with any type of loan or financial product that you currently have, or that you had in the past. It could be in the form of a loan from any financial institution of any kind, as well as personal, auto, mortgage, credit card, education, among others.
Does Prequalification Affect My Credit?
When obtaining your credit report, the score you have in each of the credit bureaus is analyzed by the lender. They use all three bureaus, namely Experian, Equifax, and Transunion. The credit score is measured taking into account: whether or not you have had credit before and the behavior in the timely fulfillment of the monthly payments that you have. Many lenders also look at how many times you applied for credit within a certain time frame, and how many times you got prequalified for a loan or credit. They also pay attention to any defaults filed, collections, if you are bankrupt, among others.
Additionally, they check if you are a person who has recently changed anything on your credit history, or if you have had different loans. All these variables are the ones that ultimately influence your credit score. Does prequalification affect your credit score? Let’s dive into it and take a look at your credit journey.
What Does the Credit Report Contain?
The credit report has different variables, but most of them are constant. It is made up of:
Your personal data: here you would include your data such as name, social security number, and address.
Your payment history: that is, in recent months the purchases you made using credit, and the way in which you did it. It also entails your payment transactions for your purchases and the time in which you have made the corresponding payments. When you do not cancel any service, such as cell phone, rent, public services, or medical services; they are also recorded in your report.
Your current debts: these inform the lender about the current financial obligations, the initial value of the debt, the value of the balance, the amount you must pay monthly, and the number of outstanding payments.
Financial information: at this point, all the financial information that the lender has about you is gathered according to the obligations contracted, the payments made, and your pending payments.
Evaluating Your Credit
If you have ever noticed your credit score dropping in a few or more points when you applied for a loan or credit card, you already know that it does affect your credit history and score. When the lender or creditor sees a lot of inquiries on your credit report, it says a lot about your state of mind and your financial situation.
Prequalifying for a loan is considered an inquiry in the eyes of every lender, and creditor. In fact, when a lender is trying to evaluate your credit and make a decision on whether to approve your loan, they will usually check to see if any other lender has prequalified you, and whether or not, you are shopping around for a loan or credit.
The question now is whether prequalification affects your credit score or not:
It does not,
but it can get a little complicated, if you don’t know what to expect during the borrowing process.Soft Inquiry
Prequalification is usually thought of being a soft inquiry, and not a hard inquiry. Due to the fact that it is a soft inquiry, it won’t affect your financial situation in any way. It can be very useful as a tool when you want to reduce any risk of not being approved for a new loan or credit card.
However, there are no guarantees that you will be approved, just because you have been prequalified. You would still have to go through the entire process for final approval. Additionally, you would still have to face the same scrutiny from lenders and credit card companies that other applicants have to face.
Credit Card Offer
Prior to putting in an application for your prequalification, it is very important that you understand the meaning of the word, ‘prequalifcation.’ If you searched for or seen a company with a credit card offer, you probably see that they offer tools where you can check whether you are qualified or eligible before you apply for the loan. It could also be that you got a credit card offer in the mail, letting you know of your prequalification for a specific credit card. How do those companies make a determination of whether to prequalify you or not? How can they tell, if you are a candidate for approval? They don’t know how to read minds. So what is the deal?
The Credit Bureaus
The credit bureaus are the ones who might have given your name and the names of other consumers to the credit card companies. The credit bureaus know your credit score and credit history. They sell names to lenders and credit card companies. It is all a business and so that is how the companies can contact you with their offers for a certain kind of card, which you may be qualified for. It is that simple.
In this case, the credit card companies or lenders did not get your information using the hard inquiry style of investigating your financial situation on their own. So, this is what you would call the soft inquiry where your credit scores and credit history would never be affected.
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Hard Inquiry
Since we got the basics out of the way and looked at the question: does prequalification affect your credit score, let us see what is involved with prequalification.
The hard inquiry is typically done when you are the one who goes to the lender or credit card company for a loan, or credit card. That is when your credit is pulled to take a look at your financial status.
The lender needs this information to make a decision on whether you are a candidate for approval. When a hard inquiry is done, it can reduce your credit score, lowering the points, depending on how many inquiries were executed. In some cases, the hard inquiry can remain on your credit report for as many as two years.
Conclusion
It is important to bear in mind that the higher your score is, the better it will be for you as a client since the higher the score number appears, the better possibility you will have of obtaining credits at much lower interest rates. So do not be afraid to start your prequalification process, provide the correct information and get to know your entire process to be able to obtain your loan or credit card.
In the meantime, be mindful that you can check if you are a candidate for a credit card so you know ahead of time that you have the possibility of being approved. However, at the same time, do not apply for a loan or credit card from too many lenders because this will greatly reduce your credit scores. Before you know it, you will have a poor credit score. Remember that, even when you receive a prequalification notice, it does not mean that you will eventually be approved. So be careful which ones you accept.
If you want to learn more about this topic, go to the Goalry platform and go over to the loanry and creditry stores. They have tons of information that will help you.