STOCK CREDIT CARD APPROVAL
Getting a ‘pre-qualified’ isn’t necessarily a sure sign from a bank that you will get the credit card. Here's what it entails for you.. Image Credit: Shutterstock

Dubai: Are you looking for a new credit card? If you are, you may already find yourself frequently notified of being ‘pre-qualified’ for certain credit cards from different banks – before you even went ahead and applied for them. What does it mean to get such offers and what do they entail?

“Getting a ‘pre-qualified’ isn’t necessarily a sure sign from a bank that you will get the credit card. While it is considered as a first step towards securing it, it merely means you’re current state of finances has been reviewed,” explained Abbud Sharif, a banking industry analyst based in Dubai.

“When ‘pre-qualified’, your credit card issuer conditionally agrees, but is not obligated to offer you the card. In most cases they will reject your application if they find out the information you gave was incorrect or if any discrepancy on your credit history makes them wary about offering you credit.”

Getting ‘pre-qualified’ isn’t a guarantee for a credit card

Being pre-qualified for a credit card is an early step in the application process, and it means you have met at least some of the card issuer’s requirements, which includes your income, bank account information and a potential debt and payment amounts, among other factors.

“Your card issuer will review your submission and run a credit check to determine how likely you are to make your payments on time. The pre-qualification credit check is what’s known as a ‘soft inquiry’ that will not hurt your credit scores,” explained Joseph Paul, an Abu Dhabi-based banker.

“Unlike pre-qualifications, final approvals require a ‘hard inquiry’, which temporarily lowers your credit score. The issuer may also ask for salary slips and the process may take up to 10 days. The approval letter will include more details about the offer, such as credit amount and interest rate.”

How ‘soft inquiry’ differs from ‘hard inquiry’
The difference between a ‘hard’ and ‘soft’ inquiry boil down to whether you gave the card issuer permission to check your track record with paying down debts. They conduct these checks to specifically know how much credit you’re juggling and how long you’ve been managing your credit.

‘Hard inquiry’, which require your permission for a thorough check into your credit history, commonly take place when you apply for a mortgage, loan or credit card, and you typically have to authorise the check.

Unlike a ‘hard inquiry’, a ‘soft inquiry’ only involves looking at your credit report at the surface and doesn’t involve a thorough investigation. For example, your report might be checked to verify your identity or to see if you fit within a certain demographic for marketing purposes.

So, although similar in definitions, obtaining a credit card is a slightly lengthier process than getting ‘pre-qualified’ as it requires a more exhaustive investigation of the borrower’s credit history and other financial information.

What are the risks with pre-qualifying for a credit card?

As a pre-approved credit card is offered to you based on the card issuer’s assessment of your creditworthiness even when you have not applied for a credit card yet, these offers are valid for a limited period of time, and the timing may not necessarily coincide with your requirement of a card.

“As ‘pre-qualification’ status on a credit card only signifies your eligibility for a card, and not instant approval, check the interest rate for regular before accepting a pre-approved credit card,” added Sharif.

“So while it's good to apply for approval at the start, it’s better to apply with more card issuers to ensure you get the lowest interest rate you can. But keep in mind a credit card pre-approval doesn't affect credit, but the final approval can cause a minor drop in credit score.”

What does the final approval process not include?
“As the approval process for a credit card usually does not take into account expenses such as existing debts or daily living costs into account, there is still a certain degree of planning left for the borrower,” added Paul.

“If you have an urgent financial emergency after agreeing to the credit amount or limit, will you still be able to afford or manage your expenses? So review your budget to determine what works best for your financial situation before you decide how much of credit limit you want to take on.”

Verdict: Should you pursue a pre-qualified offer for a credit card?

Pre-qualifying for a credit card may not be very different from qualifying for other types of loans, but know that, unlike other loans, you’re not the one reaching out to your lender when you get the offer. On the contrary, it’s the other way around; it’s an offer to you from the lender.

This means that the card issuer already has a credit card offer for you before you apply. Such offers are often given to customers who have previously availed of a loan from a lender and have maintained a good track record in repayment.

“It helps to be pre-qualified for a credit card because of competitive interest rates. This means that you pay lower interest than you would otherwise pay when getting approved for a card right away. This brings down your monthly instalments, which helps you afford your needs,” Sharif added.

“Also, when you pre-qualify for a credit card, the lender has already evaluated your financial standing and credit history in detail. This means that the processing time for the request is short, and the card issuance is quick. This justifies your case to take a card pre-qualified with minimal risk.”