What is prequalification?
The term prequalification refers to a credit estimate given by a lender based on information provided by a borrower. Pre-qualifications are conditional and involve the lender reviewing the solvency before granting a pre-approval. Lenders typically use this as a marketing tactic for creditors looking to gain new customers, especially for things like credit card and mortgages.
READ MORE: 4 Reasons Why Direct Lender Loans Might be the Right Choice for You
When it comes to getting a loan, there are a lot of different options available. You can go through a traditional bank, or you can work with a direct lender. Direct lender loans might be the right choice for you for a variety of reasons. visit paydaychampion to know the 4 Reasons direct lenders are better!
Key points to remember
- A prequalification is a credit estimate given by a lender based on information provided by a borrower.
- Pre-qualifications are conditional and involve the lender examining a borrower’s creditworthiness before granting pre-approval.
- Lenders typically use pre-qualifications as a marketing tactic for creditors seeking new clients.
- If a borrower decides to seek a pre-approved deal, the creditor should always get a thorough investigation of his credit report.
What is a credit reference?
How the pre-qualifications work
Pre-qualifiers are popular marketing tactics used by many creditors to entice new and existing customers to apply for credit products such as loans, credit cards and mortgages. In most cases, prequalifications are unsolicited offers of credit. This process gives these consumers preferential access in a credit application.
Lenders use existing information provided by consumers. This could be from data provided in a previous application or because the consumer is already a customer. Creditors also have multiple relationships with credit agencies that allow them to target certain types of borrowers and obtain flexible credit applications for prequalification. Soft inquiries do not affect an individual’s credit score. Creditors typically target borrowers based on their credit history. Relationships with credit bureaus allow creditors to obtain lists of potential borrowers within their target score range and pull gentle credit inquiries to determine prequalifying offers.
Potential borrowers may receive a phone call or letter in the mail offering prequalification for a specific amount for a certain loan product. If interested, the consumer can contact the creditors to proceed with the request. This can help increase the chances of a borrower being accepted.
If a borrower does not receive a pre-qualification offer, there are a few resources they can turn to to understand if they can be pre-approved. Many creditors offer a prequalification tool that allows a borrower to get pre-approved with a gentle inquiry that does not affect their credit scoreCreditCards.com is one source for getting these offers. His credit matching tool provides free pre-qualifications from multiple credit providers allowing a borrower to compare products between issuers. Credit monitoring sites like Credit Karma also offer pre-qualifications based on consumer credit history.
Creditors use informal inquiries to determine pre-qualifications, which means they don’t affect a consumer’s credit report.??
Since prequalifications are conditional offers, they do not necessarily guarantee that a Financial institution will issue someone that amount of credit or any credit at all. Prequalification offers are simply estimates and marketing materials that can help a credit issuer gain new customers. If a borrower decides to request a pre-approved transaction, the creditor must still obtain a serious investigation on their credit report. This provides the lender with more complete information on whether the customer actually qualifies and, if accepted, how much the creditor will lend.
Borrowers should have a good understanding of their credit rating and credit profile. Many credit applications and rejections can have a significant negative effect on a borrower’s credit rating, decreasing their eligibility for credit in the future.
Understanding prequalification vs. Pre-approval
Prequalification vs pre-approval
Prequalification and pre-approval are unique to the credit industry. They can be a successful and profitable marketing tactic that attracts customers through direct mail in the form of letters or emails. Although they may seem similar, there are some differences between the two.
While a pre-qualification is normally the first step in the credit marketing process, a pre-approval is the second step in the loan process. The first indicates creditworthiness, while the second provides the borrower with a more precise answer. Lenders require consumers to complete a credit application in order to obtain pre-approval and may provide certain Credit limit after doing a review of the borrower’s financial history. In most cases, the lender offers consumers a conditional commitment. So, if a borrower has mortgage pre-approval in hand, they can start to buy a house which falls within this price range.