Prequalified vs. Preapproved: Key Differences Explained

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Understanding Prequalification and Preapproval

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding prequalification and preapproval for loans and credit cards. For any mortgage service needs, call us at 213-732-3074.

What Does Prequalified Mean?

Prequalification means a creditor has conducted a basic review of your creditworthiness to determine if you are likely to qualify for a loan or credit card. This process may involve sharing basic financial information, such as your annual income, monthly housing payment, and savings. Some lenders may perform a soft credit inquiry, which does not impact your credit scores.

Once prequalified, you can choose to apply and undergo a complete review process, which may require submitting official documents and agreeing to a hard credit inquiry. Prequalification does not guarantee approval, but it can help you avoid the hard inquiry that accompanies a formal application if you are denied at this stage.

What Does Preapproved Mean?

Preapproval may indicate a higher likelihood of approval for a loan or credit card, but it depends on the process. For example, preapproved credit card offers may use the terms preapproved and prequalified interchangeably. Preapproval offers for loans or credit cards may be received by mail, phone, or email, based on a credit reporting agency’s list of consumers that meet a creditor’s criteria.

If you respond to a preapproval offer and apply, the creditor must offer you the same terms as in the mailing. However, the exact terms may vary, and the lender may decline your application after a thorough review of your credit report, credit scores, and application information.

Mortgage and car loan preapprovals involve a more complex application and review process, requiring submission of tax returns, proof of income, and bank statements, along with a credit check. The lender may then offer a loan preapproval letter valid for several months.

Prequalified vs. Preapproved

Neither prequalification nor preapproval guarantees that you will ultimately qualify for a loan or credit card. Here is a comparison:

• Prequalification: Typically involves a soft credit inquiry, a review of basic information, and does not guarantee approval. It can help you weigh your options before applying for credit.
• Preapproval: Often involves a hard credit inquiry, an in-depth review of financial documents, and may be more accurate than prequalification. It 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 impact your credit scores for a few months. 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, minimizing the impact on your credit.

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

Getting prequalified or preapproved can be a smart first step when looking for a loan or credit card. It helps you understand your likelihood of approval and see estimated rates and terms. Use prequalification tools to compare and find the best offers based on your credit.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you navigate the process and find the best mortgage options for you.

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