Does Getting Preapproved Affect Your Credit?

What Is Preapproval?

Preapproval is when a lender or creditor determines you meet specific criteria that make you a strong candidate for a loan or credit card. It's important to keep in mind, though, that it doesn't guarantee final approval.

Depending on the situation, the preapproval process may involve pulling your credit using a soft inquiry or a hard inquiry, which can have an impact on your credit scores. Here's how it can differ based on the type of loan.

Preapproval for a Mortgage

Getting a mortgage preapproval is an essential step in the homebuying process. Having a preapproval letter in hand gives you tentative loan approval with estimated terms and can strengthen your offer on a home.

Unlike other loan options, the mortgage preapproval process requires a lot of information, including your income, assets, debts, employment history and other pertinent details. The lender then performs a hard inquiry on one or more of your credit reports.

Mortgage preapprovals typically last 30 to 60 days, after which you may need to provide more recent documents to ensure your creditworthiness hasn't changed.

Learn more: What Documents Are Needed for a Mortgage Preapproval?

Preapproval for a Car Loan

A preapproval for a car loan lets you know how much money you can borrow and can also help you negotiate better terms with the dealer. As with a mortgage preapproval, you'll typically need to fill out an application, providing personal information such as your monthly income, debt balances and employment history.

A car loan preapproval typically lasts 30 to 60 days and can affect your credit because the lender will perform a hard credit inquiry to review your credit.

In some cases, however, auto lenders may prescreen your credit history and send you a preapproval offer in the mail without you submitting an application. In this case, the inquiry is soft and won't affect your credit score.

Preapproval for a Credit Card

With credit card preapproval, you may seek out a specific card you'd like to get preapproved for or receive prescreened offers by email or in the mail from credit card issuers.

It's important to note that credit card issuers may use the terms "preapproval" and "prequalify" interchangeably. Either way, it typically involves a soft credit inquiry.

You can then decide whether to accept the offer and complete the application process—just be sure you know all the card's terms before applying. Final approval is still subject to a hard credit inquiry for a more thorough review of your credit along with your income, debt balances and other factors.

Preapproval for a Personal Loan

As with credit cards, you can typically receive preapproval for a personal loan with only a soft credit pull, which won't affect your credit scores. A preapproval for a personal loan is a way to determine if you're eligible for a loan before formally applying and triggering a hard credit inquiry.

In this case, the lender reviews your credit, income and other factors to determine if you meet the loan requirements. Additionally, the lender will provide you with an estimate of your potential loan amount, annual percentage rate (APR) and fees with the loan.

Personal loan lenders may also send you prescreened offers, which provide some basics about what you may qualify for.

Does Preapproval Affect Your Credit Score?

Preapproved offers for credit cards and personal loans typically don't impact your credit score, while mortgage and auto loan preapproval typically involve a hard inquiry, which affects your credit.

Even if a lender doesn't check your credit during the preapproval process, they'll likely run a hard inquiry once you accept the offer and submit an official application.

Credit inquiries have a minimal impact on your FICO^® Score^Θ, reducing it by less than five points for most people. Additionally, hard inquiries only affect your FICO^® Score for 12 months.

The good news is that if you're shopping around for a mortgage loan, auto loan or student loan, FICO will combine all hard inquiries into one for scoring purposes. The only catch is that you have to complete your rate shopping within 45 days—or 14 days for older FICO^® Score versions.

However, that's not the case for credit cards and other loan types, so be careful about multiple applications for those types of credit.

Benefits of Getting Preapproved

Getting preapproved for a mortgage or auto loan can give you an idea of your borrowing limit so you can shop for a home or car with confidence. Having a lender willing to finance your home purchase makes you a more attractive candidate to a home seller.

Loan and credit card preapproval offers significant benefits, such as:

• Provides a degree of certainty: When you receive a preapproved offer, it's not a guarantee of approval. However, it indicates you meet the card issuer's basic eligibility requirements so that you can proceed with the application process with at least some confidence.
• No damage to your score depending on loan type: Preapproval for credit products other than mortgage and auto loans typically only requires a soft credit pull to determine your eligibility for a credit card.
• Allows you to compare offers: One of the best ways to maximize your savings on a mortgage, auto or personal loan is to compare preapproval offers from different lenders.
• Shows your buying power: If you're applying for a mortgage, auto loan or personal loan, the preapproval process will typically tell you how much you can borrow based on the information you provided. From there, you can determine how much to request based on your budget.
• May include promotions: Many credit card preapprovals offer valuable benefits such as an introductory 0% APR for a specific period or a higher welcome bonus.
• Simplifies the application process: When you go through preapproval with a lender, they'll already have most of your information on file when you're ready to submit an official application. This can help streamline the application process and save you a little time.

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How to Get Preapproved for Credit

Depending on the type of credit you're applying for, preapproval is often a good first step in the credit approval process. It gives lenders and creditors a glimpse of your creditworthiness and gives you insight into the loan or credit card you might receive.

Follow these steps to get preapproved for credit:

1. Check your credit. Before starting the process, it's wise to get an idea of where your credit stands. You can get a free copy of your Experian credit report and FICO^® Score to see where you stand. You can also get access to your credit reports from all three major credit bureaus at AnnualCreditReport.com. Checking your own credit does not affect your credit score.
2. Increase your approval odds. When reviewing your credit reports, identify any issues impacting your credit scores and take the necessary steps to address them and hopefully improve your credit score.
3. Gather your personal documents. Since final approval will ultimately require verifying your information, ensure the information you submit for preapproval is accurate from the start. Refer to your pay stubs, tax documents, account statements and other essential documents when entering your financial and employment information.
4. Submit a preapproval application. Provide your personal and contact information, annual income, employment details and financial information. For credit cards, personal loans and auto loans, a lender may send you a prescreened offer, in which case you simply need to submit a formal application to proceed.
5. Agree to a soft credit check. Since a soft inquiry doesn't affect your credit score, you can prequalify with multiple lenders to find the best interest rate available.
6. Find out the lender's decision. If approved, you'll find out your borrowing amount, interest rate, repayment term and estimated payment. Generally, the better your credit score, the lower the interest rate you'll pay.
7. Submit a formal application. The lender's initial approval is based on the information you've given them up until now. The final step involves supporting your application information by uploading supporting documents like your bank statements and tax returns.

The Bottom Line

A preapproval isn't a guarantee for new credit, but it can help you determine whether you're likely to be approved. If not, take steps to optimize your credit before you apply. Thankfully, there are many ways to improve your credit.

To know where your credit stands before applying for preapproval or anytime, consider getting free credit monitoring from Experian. You can see current versions of your FICO^® Score and credit report, and you'll get updates when changes occur.