When it comes to lending credit, several familiar terms are used regularly in advertisements and offers regarding credit or loans. Pre-screen and pre-qualify are terms we often see used interchangeably, but do they really mean the same thing?
The terms ‘pre-screen’ and ‘pre-qualify’ both refer to types of soft credit inquiries, or ‘soft pulls,’ which reveal a customer’s credit report without impacting their score. However, these actions each have a distinct process. Let’s take a closer look at what’s involved.
A soft pull is a way for a business to view a consumer's credit report. A soft credit pull, often known as a soft inquiry or soft credit check, happens when the business views the consumer’s credit report either through pre-screening or from the consumer's authorization. For example, when someone is shopping for a home loan, a lender is able to give this person pre-approval before they apply by doing a soft pull of their credit report.
The important factor is that a soft pull is not attached to an actual application for credit, and it does not impact the consumer’s credit score. On the other hand, a hard inquiry shows on the credit report as an instance when the consumer has requested credit, such as an application for a car or home loan. Anyone viewing the report can see that this person has previously asked for credit, which implies a higher risk for additional lenders. For this reason, hard pulls stay visible on a credit report for two years and will usually lower the consumer’s credit score for a few months. Soft pulls, however, have no link to supposed risk, which is why they do not affect a credit score even though they are logged into the credit report.
A soft credit pull happens when:
Pre-screen offers are soft pulls that happen behind the scenes without the consumer’s knowledge. A credit bureau (such as Experian, Equifax, or TransUnion) can provide a list of consumers meeting specific criteria to a bank or other lending institution or business.
When does a business need to pre-screen consumers’ credit without their knowledge? This method is used in the case of direct-mail marketing. By pre-screening consumers for credit offers, lenders can minimize marketing costs by removing unqualified candidates from their mailing lists. Pre-screen submissions may still use language in their marketing materials, such as “you’re approved” or “pre-qualified,” to get the consumer's attention, but these are all technically pre-screen offers if the consumer did not initiate the soft pull themself.
Lenders are bound by the following requirements for making pre-screened offers:
Pre-qualification soft pulls allow a bank or business to see a consumer’s credit report before they apply for a loan or credit. This helps the lender understand how this potential customer has handled their credit in the past while allowing a potential customer to know their options before applying. Suppose the prospective consumer has defaulted on loans or missed payments in the past. In that case, the business inquiring can only assume it would be riskier to offer this person credit than someone who demonstrates fiscal responsibility.
When a consumer is shopping for credit options, they are looking for the best interest rate and terms for their needs. Lending institutions want to be chosen and offer competitive credit products, but they need to manage their risk at the same time. Creditors only make money when interest is paid. Therefore, a consumer must apply and qualify for specific credit products so the lender can be confident they will make a profit when the consumer takes their credit offer. This is how a business can minimize the risk level they take when extending an offer of credit.
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