When a mortgage lender or broker offers you a pre approval offer, what does that really mean? It means you will get an instant approval for a mortgage. But there is more to it than that. What exactly does an “instant” pre approval entail?
The term “instant” refers to the approval – often within minutes – of your application, when you have submitted it online. The term “pre-approval” usually refers to the approval – often within hours – of your lender’s submission of your offer. And “scoring” typically means a credit score report, which shows you how you fair in terms of your credit history with a particular lender.
So how does a credit score to help you qualify for a mortgage? Your credit rating provides you a comprehensive history of your borrowing and repayment habits with a particular financial institution. Your credit score tells the lender whether you are a good risk. It also indicates whether you are a high risk to lenders who extend credit at high interest rates. And your credit score tells the lender if you are worth taking on a loan, a more sophisticated version of which is called adverse credit mortgage credit counseling.
Banks and mortgage companies use a variety of financial factors to determine your creditworthiness. But your credit score is among the most important factors used in determining your mortgage interest rate. The higher your score, the lower your interest rate will be. Conversely, the lower your score, the higher your interest rate will be. The lender uses several factors to arrive at your score, including your outstanding credit card debt, outstanding loans, your mortgage payment history and the amount of time you have owned your home. The higher your score, the more likely it is that the mortgage lender will approve you for a loan.
But what if you are not approved for a pre-approval? Your credit score will still tell the lender whether or not you are a good risk. If your credit report shows that you have made late payments, or that you have filed bankruptcy, the pre approval scoring will reflect these negative marks. These negative marks on your credit report reflect a major failure in one aspect of your finances. If those bad credit marks get certified, the pre approval scoring will drop significantly.
So how do you improve your pre approval scoring before a lender turns down your application? One way is to stop applying for pre approval credit cards and accounts. Instead, start saving up for a down payment that will be used to close the deal. And start making all your payments on time. Your good financial habits will be noted by the lender, and you will gain a better pre approval rating.
Another way to improve your score is to increase your credit score by getting a copy of your credit report and score online, via a free credit report site. To make sure that your report and score are accurate, go over it with a fine tooth comb. Make sure that all the information is correct, including any inaccuracies. Then dispute any errors you see, making sure that the company who provided the information has proof that it’s true.
You don’t want to have a pre-approval rating, but if you have one, the lender may be less likely to turn down your loan. In the worst case scenario, if your pre approval rating drops, the lender may be more willing to work with you, because they at least know that you have some credit history to build on. Remember that it’s important to pay off your debts before you apply for more credit. If you do this responsibly, you can avoid many problems later on.