In the credit lending world, there are several terms that are often used interchangeably but mean very different things. Prescreen, preapprove, and prequalify among others. Prescreen and prequalify are both services that credit lending companies use to approve consumers for offering them a new line of credit. But the processes for each of these is different.
Let’s dive in.
Prescreening, or preapproving, allows businesses to screen consumer credit reports before they ever ask about obtaining a new line of credit. They can do this without getting consent from the consumer. Think of mailers that get sent out to consumers that tell them they’ve been preapproved for a new credit card.
One important thing to note: prescreens are governed by the Fair Credit Reporting Act (FCRA), which means lenders are required to:
Prescreens do not return data on customers under the age of 21. Due to the age requirements and the ability for consumers to “opt-out”, prescreens have a much lower rate of return when trying to see a consumer’s credit score. For this reason, most brokers and lenders prefer to prequalify their customers, instead of a “prescreen”.
Prescreens do not typically generate a full credit report. In fact, they are usually limited to a credit score only. If you want to see a full credit report, you would need to prequalify your customers. Let's dive deeper...
Prequalification is a tool that allows customers to consent to have a soft inquiry credit check done as they seek a new loan. So, rather than the business prescreening them before they’ve shown any interest, the consumer themselves will often reach out to the lender to be prequalified for a loan or new line of credit.
A great example of this is when a consumer goes to purchase a new vehicle or get a small business loan. At the time when they inquire about the loan, the lender can run a soft inquiry in real-time on their credit history to prequalify them before they apply for the loan.
During this prequalification, the lender looks at the eligibility of the consumer for different credit products, so they can provide different options to the customer without the negative impact on their credit score. This allows consumers and shoppers to compare all options and then determine if they want to move forward and apply for anything based on qualification approval.
No firm offer of credit is required by the lender if a consumer is prequalified. If you are currently performing prescreens on your customers and are limited to only seeing their credit score, then consider contacting Soft Pull Solutions. We are able to provide a full credit report through a soft pull prequalification.
A prescreen or prequalification will not impact a consumer’s credit history. Each of these processes only requires a soft pull inquiry on their credit to preapprove them and does not lower their score.
If you have questions about prequalifying your customers for credit or would like to demo our prequalification software, please give us a call at 844-515-1550.