Prequalified vs preapproved: soft and hard credit checks explained

What each label promises

The CFPB is direct about this: lenders use the terms prequalification and preapproval differently. Some base a prequalification letter on unverified information you report and only issue a preapproval letter based on verified information. Either way, it is not a guaranteed loan offer. Some lenders may instead issue a written commitment letter valid for a set period. [1]

Mail and app offers that say you are preapproved for a credit card are often prescreened offers. The FTC explains that a company sets its requirements and gets lists from credit bureaus of people whose reports meet them; because you were prescreened, only under limited circumstances would you be turned down, which is not a promise of approval. [2] The label does not tell you the rate or limit you will get.

Soft inquiry vs hard inquiry

The CFPB says hard inquiries are often inquiries by lenders after you apply for credit and will impact your score, because most scoring models look at how recently and how frequently you apply. Soft inquiries do not affect your credit scores and are shown only to you when you review your own report. [4] Experian lists soft inquiry examples including viewing your own report, some loan prequalification, promotional offers and some employer screening; hard inquiries include card applications and the formal application for a personal loan. [3]

The effect is usually small and temporary. myFICO says one additional inquiry takes less than five points off FICO scores for most people, and hard inquiries stay on the report for up to two years but only affect FICO scores for one year. [5] Experian adds that most scoring models stop counting a hard inquiry after 12 months. [3]

Rate-shopping windows, by loan type

Scoring models treat several applications for the same kind of installment loan as shopping, not as a hunt for new debt. myFICO says older FICO versions group inquiries within any 14-day span and the newest versions within any 45-day span; for mortgage, auto and student loans, FICO also ignores those inquiries made in the 30 days before scoring. [5] The CFPB tells mortgage shoppers that within a 45-day window multiple credit checks from mortgage lenders are recorded as a single inquiry, and that you can shop for multiple preapprovals and official Loan Estimates. [6]

Because a lender may use an older model, the safe plan is to finish all applications for one loan inside 14 days. Credit cards are the exception that catches people out: Experian says applying for multiple cards in a short period is not considered rate shopping. [3]

Worked example: shopping a car loan

This is invented. You plan to buy a car on Saturday the 15th. On the 3rd, you check your own credit report, which is a soft inquiry and does not affect your score. [4] On the 5th and 6th, you prequalify on three lender websites that state they use a soft check. On the 8th, you formally apply with the two best, and on the 15th the dealer submits one more application. That is three hard inquiries within eight days, inside even the 14-day window, so FICO models score them as one shopping inquiry. [5]

The mistake to avoid: on the 20th, a store offers 10% off for opening a store credit card. That is a separate card application, not part of auto rate shopping, and it adds its own hard inquiry. [3] Wait until the auto loan is final.

When an offer changes after you apply

Because neither label is a guarantee, the rate or amount can change once the lender verifies your information. Before a preapproval matters, gather the documents a lender will verify, read the conditions in any commitment letter and check how long it is valid. [1] Compare offers by APR and total cost, not by the label on the letter; the related APR guide explains how. A preapproval does not commit you to that lender, and the CFPB says you can shop multiple preapprovals. [6]

If you do not want prescreened card and insurance offers at all, the FTC says you can opt out for five years at optoutprescreen.com or 1-888-5-OPT-OUT (1-888-567-8688), or permanently by returning a signed form. [2] A credit freeze is different: it blocks most new credit checks until you lift it, as covered in the related freeze guide.

Checklist: shop loans and cards with minimal credit impact

Scoring rules vary by model and lender. This page is US consumer education, not personalized credit advice.

• Pull your own credit reports first; checking your own credit does not affect your scores. [4][6]
• Before any prequalification, confirm on the lender's page or by asking that it uses a soft inquiry.
• Ask each lender whether a letter is based on verified information and whether it is a commitment. [1]
• Schedule all formal applications for one mortgage, auto or student loan inside 14 days. [5]
• Apply for credit cards one at a time and only after deciding you want that card. [3]
• If a freeze is in place, ask which bureau the lender uses and lift only that one for the window.
• Hold off on other new credit until the main loan closes; the CFPB notes that other applications during a mortgage process add inquiries. [6]
• Review your reports afterwards and dispute any hard inquiry you did not authorize.