What do you need to get it right?
Whether you need money for a home, car or credit card, advancing your credit makes things easier. You will know how much you can spend, you will be in a better position to negotiate and understand the cost of your loan before you end up in something that you cannot afford.
How are you pre-approved for credit? Gather information about your finances and the credit you need, and submit an application.
Follow the steps below to make the process easier.
Manage your credit
Your credit is crucial for almost every loan. Unless you get a payday loan (which is probably not a good idea), lenders will look for a borrowing history. Make sure that they – and you – will not get any nasty surprises when this happens.
Familiarize yourself with credit: Your credit is one of the most important factors for getting pre-approved. Understand how it works and what lenders are looking for.
Check your reports: Order your credit reports to see what they contain. This is free for all consumers – once a year, you have the right to see your credit reports from every credit bureau. Take a look at the report and see if there are any delays or errors in the reports.
Fix errors: If there are errors in your credit reports, correct them. The Federal Trade Commission reports that five percent of consumers have errors in their reports.
While this number is not inconvenient, the consequences of a mistake are dire and can ruin your chances of borrowing. Report errors to the credit bureau and any lender reporting the error. Learn more about bug fixes.
Choose a lender
At this point, you are ready to shop for lenders. You probably only need to get approval from one lender to start a purchase (and using a letter of recommendation as leverage), but it is worth comparing the cost of the loan between several lenders. You are not required to use a lender that is too loud for you, but you can still go through the process with the lenders that offer the best terms – otherwise you will have to do it all the time.
Check with different lenders: Include several lenders – and several different types of lenders – when searching. Try a bank and local credit union for home, car and credit cards. For personal loans, be sure to include an online lender or P2P lender (they often have competitive rates and are sometimes willing to work with borrowers who have less than perfect credit).
Get complete information on how much you will pay, including:
- Origin or processing fee
- Interest expense (is the variable rate or fixed?)
- Calculation penalties, if any
- Annual fees
Are you pre-qualified? For credit cards, some lenders keep a list of borrowers who are “pre-qualified.” If you are on that list, there is a decent chance that the lender will want to work with you. However, there is no guarantee that you will be approved – you still have to submit an application and the lender may find something they do not like. That said, there is at least something in the database somewhere that the lender likes for you. If you are not pre-qualified with a particular lender, you can still apply and see what they say.
Apply for a loan
Once you’ve chosen a lender and got ready, it’s time to apply. There is only one way to find out how much you can get: complete the application and wait for a response.
The answer may come quickly, or it may take longer. Answers for car loans can appear more or less immediately. Home loans can take a long time and lenders are looking for a seemingly endless list of documents. This means that some lenders often shorten one-time payments when you get pre-approval, so the process is usually faster than completing it completely.
False hope? Keep in mind that some lenders claim to override you without really looking at your finances. Failure to raise a loan or ask for your income is a bad sign. For recognition to mean something, they should really evaluate your credit. It doesn’t do you much good to get “pre-approved” just to find what you need to get started (because you can’t borrow nearly as much as promised).
To avoid this problem, work with reputable lenders – banks and credit unions in your community, as well as legitimate online lenders. Avoid men at night and anyone who claims “we approve of everything”.