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You’re pre-approved! (and what it really means)

WOMAN WITH PRE-APPROVED SIGN

Raise your hand if you’ve received something in the mail (or email) exclaiming “You’re Preapproved!” Probably a fair number of you have, especially for a credit card. Sometimes the offer says you are pre-qualified. But what does it really mean to be pre-approved or pre-qualified?

Essentially, it means that the financial institution (bank, credit union, credit card company, mortgage company) has deemed you a good credit risk for a loan or credit card, based on the information they have. It does not, however, mean that you are approved for the loan or card. To be approved, you have to supply more information and complete a loan application.

Where does the lender get the information?

When you receive an unsolicited offer in the mail for a pre-approved or pre-qualified credit card or loan, the lender has likely contracted with one of the big-three credit bureaus (Equifax, Experian and TransUnion) to do what is called a “soft inquiry” on your credit report. Soft inquires don’t require your permission and don’t affect your credit score in any way. Soft-inquiries provide only basic information. But this information is enough for the lender to decide if you are worth pursuing further.

Pre-qualified or pre-approved – what’s the diff?

The difference between pre-qualified and pre-approved is in the amount of information the lender has on you. Think of pre-qualified as pre-approved lite. Prospective borrowers can get pre-qualified with basic information such as your total debt level and credit score.

Getting pre-approved takes the process one step further. You can think of a pre-approval as a promise from a lender to lend you money. They’ve gathered more information on you such as your income and length of employment. They will probably want you to provide proof of such information, such as a W-2 tax form, a paycheck stub, a list of your assets. They will have calculated your debt-to-income ratio and are willing to put a number on a credit limit or how much they will lend you. You will also know what rate you get and what your payments will be. At this time, the lender also pulls a “hard inquiry” with the credit bureau and they need your permission for this.

The advantages of pre-approval

You don’t need to wait for an unsolicited offer in the mail to be pre-approved for a loan, especially if you are buying a home or a vehicle. All you have to do is call or come into White Sands FCU (or your favorite lender) and we will help you through the process. You will find out just how much you can borrow, for how long, at what interest rate and what your monthly payment will be.

With a mortgage loan pre-approval, the real estate agents know that you are a serious buyer – both willing and able to purchase a home. If you make an offer on a home you like without a pre-approval, it is more likely to be rejected.

When buying a vehicle, a pre-approval allows you to shop around without having various dealers pull your credit (which can negatively affect your credit score). It allows you to negotiate the price of the vehicle without complicating the transaction with negotiating financing at the same time. And finally, it allows you to stick to your budget and avoid the extras that car dealers like to throw in, like extended warranties and additional insurance.

Do you want us to pre-approve you? Call us. Come see us. We can help.