Does Getting Prequalified Hurt Your Credit?

You can cause significant damage to your credit rating due to credit preapproval, even though the credit bureaus tell consumers that the inquiry for a preapproved credit application does no damage to your credit score. Although the damage from prequalification rarely catches your eye, it can cause significant damage in certain cases.

Clarification

The meaning of "prequalified" depends on the type of loan. Credit card preapproval has no impact on your credit rating, because you did not request an account. If you accept a preapproved credit card, the lender then performs a hard credit check, which damages your credit rating. Mortgage prequalification -- where you apply for a mortgage and choose a home later -- hurts your credit rating, because you request a loan. In both cases, the resulting inquiry initially causes zero to 5 points of damage, and causes additional damage based on much debt you add.

Potential Effect of Inquiries

Limit how many times you request credit, because six or more inquiries are as bad as a negative entry such as a collections or charge-off account. Although a lender probably won't reject your application for credit based on excessive inquiries, too many inquiries may magnify the impact of missed payments or a high debt burden, according to the Fair Isaac Corporation.

Considerations

Preapproved credit cards have the potential to cause havoc in your credit history and personal life, because of the chance of identity theft. If you toss preapproved credit applications in the trash, a thief can sift through your garbage and retrieve the application. By the time you find out about the fraudulent line of credit in your name, the thief may max out the credit and stick you with the bill.

Tip

To abate the flow of preapproved credit offers or avoid the temptation of new credit, sign up for Opt Out Pre-Screen. Shred any other mailings with your personal information on it. If you seek prequalification for a mortgage or car loan, apply to several lenders as soon as possible. The latest FICO model -- FICO 08 as of 2011 -- gives you 45 days to rate-shop, which means all inquiries in that time period only count as a single application. Ask the lender which FICO version it uses, because earlier versions of the FICO model only give you 14 days. Reviewing your credit history every month is a good idea in general. You receive three free reports each year from the Annual Credit Report website, so you can pull one every four months.