At O1ne Mortgage, we prioritize consumer credit and finance education to help you make the best decisions for your financial future. Understanding the nuances between prequalification and preapproval is crucial when navigating the mortgage landscape. This blog will delve into these concepts, their impact on your credit score, and how you can opt out of unsolicited offers. For any mortgage service needs, feel free to call us at 213-732-3074.
What Does Prequalified Mean?
Prequalification is an initial step where a creditor performs a basic review of your creditworthiness to determine if you are likely to qualify for a loan or credit card. This process often involves sharing basic financial information such as your annual income, monthly housing payment, and savings. In some cases, lenders may perform a soft inquiry on your credit, which does not impact your credit scores.
Once prequalified, you can choose to apply and undergo a complete review process. This may require submitting official documents and agreeing to a hard credit inquiry, which can affect your credit scores. While prequalification does not guarantee approval, it is a useful step to gauge your eligibility without impacting your credit score significantly.
What Does Preapproved Mean?
Preapproval is a more rigorous process that may provide a better indication of your likelihood of approval for a loan or credit card. For instance, if you receive a preapproved credit card offer online, the issuer may use preapproved and prequalified interchangeably. Preapproval offers for loans or credit cards can also come via mail, phone, or email, indicating that you meet certain criteria set by the creditor.
Responding to a preapproval offer and applying means the creditor must offer you the same terms as initially presented. However, the exact terms may vary, and a hard inquiry will be performed, which could impact your credit score. Mortgage and car loan preapprovals are more complex, often requiring tax returns, proof of income, and bank statements. These preapprovals can result in a loan preapproval letter valid for several months.
Prequalified vs. Preapproved
Understanding the differences between prequalification and preapproval is essential, especially when it comes to loans. Here’s a comparison:
– **Prequalification**: Typically involves a soft credit inquiry, a review of basic information, and does not guarantee approval. It is less accurate but provides a quick way to weigh your options.
– **Preapproval**: Usually involves a hard credit inquiry, an in-depth review of financial documents, and does not guarantee approval. It is more accurate and can be the first step to securing a loan approval letter for a mortgage.
Do Preapproval and Prequalification Offers Impact Credit Score?
For credit cards, neither prequalification nor preapproval offers will impact your credit scores, as they usually involve a soft inquiry. However, auto loans and mortgages typically result in a hard inquiry, which may slightly affect your credit scores for a few months. Fortunately, if you are rate shopping for an auto or home loan, credit scoring models will treat all hard inquiries within a 14-day period (or up to 45 days in some models) as one inquiry, minimizing the impact on your credit score.
Can I Opt Out of Credit Card and Loan Offers?
Yes, you can opt out of prescreened credit or insurance offers for five years or permanently by calling 888-567-8688 or visiting OptOutPrescreen.com. It may take up to 65 days to stop receiving these offers. Opting out will stop offers based on your credit report but not all forms of prescreened offers. Some companies send offers based on marketing lists or mass mailings, which you can opt out of by contacting the company directly.
Rate Shop Without Hurting Your Credit
If you are looking for a loan or credit card, getting prequalified or preapproved is a smart first step. It allows you to see your estimated rates and terms upfront and understand your likelihood of approval. You can also use prequalification tools to compare and find the best offers based on your credit.
At O1ne Mortgage, we are here to assist you with all your mortgage needs. Call us at 213-732-3074 to speak with one of our expert loan officers and take the first step towards securing your dream home.
