There are many things that can affect my credit rating. The most known factors are unpaid debts, missed payments and multiple denied requests. However, what about pre-approval loans? Can those type of requests negatively affect my credit rating? We did some research regarding pre-approval loans and how they can affect the credit score. We also asked some experts in the field, and some results might surprise you.
What Is a Pre-Approval Loan?
This is a type of loan that a lender gives you after assessing your financial situation. It helps you buy a car or a home much faster. You can use it to negotiate the price with the seller or bid with confidence. Not all lenders offer this type of service because it is not a popular choice among consumers. For a pre-approval loan, you will need to provide the lender with bank statements, income, identification, asset details and evidence of savings so that you get an estimated borrowing limit for your future purchase.
Pre-approval means that the lender is willing to give you the loan, but that doesn’t mean that he/she is obligated to approve your application. A pre-approval loan lasts anywhere between three and six months. If that period expires, you will need to apply again. You can get your request for a pre-approval accepted within forty-eight hours, but most lenders will approve your application faster if you have the necessary documents ready.
Will My Credit Rating Be Affected?
When I use any type of financial service, I always wonder if my credit rating will be affected. Because of that mindset, I had to ask the same question when it came to applying for a pre-approval loan.The first thing that I realised is that pre-approval loans are recorded in my credit file, which means that they can negatively affect my credit rating. However, they will only affect my credit file if I apply for too many loans in a short amount of time.
The pre-approval application showed up as an enquiry on my credit file. Besides that, the lender discovered the enquiry date, the credit provider, the credit amount I applied for, the reason for this enquiry and the reference number. In short, my credit file presented every single detail regarding my pre-approval loan.
However, things got a bit interesting because of the negative credit reporting system. Then lenders didn’t know whether or not my applications have been approved, meaning that most likely my lender saw me as someone who applied but failed to get the desired loan.That implies that there was something wrong with my credit rating or credit file and that I am all around just bad news for any type of lender. However, today you can easily apply for this kind of loan and let the positive credit reporting do its job by providing the lender with all the information he/she needs.
Some Things to Consider
I had to ask a lender how many enquiries I can request before it affects my credit rating. The answer was one or two. The applications will last five years on my credit file. Also, if you got your second request for a pre-approval loan accepted, do not get a new enquiry. For example, don’t sign up for a new mobile phone plan. If you do this, you will realise that your credit file has three enquiries. This could affect your credit score and mean the end for your loan.
However, this can be avoided only if those enquiries come from the same bank.
How to Get a Pre-Approval Loan?
When I first applied for a pre-approval loan, my credit file wasn’t top notch. So, I had to do some changes. Here is what you need to do:
- Get a Positive Credit Score: Try your best to pay all existing debts. Improve your credit score or show your lender at least that you care, and you are trying to have a better financial situation. The only way you can get approved for this request with a bad credit score is by proving that you can enhance your finances.
- Have Some Savings: Savings can help you a lot when applying for this service. The more money you have in your bank, the bigger the chances of getting your request approved.
- Do Not Apply Multiple Times: Various pre-approval applications will harm your credit score, and you will be back to square one or even worse. Multiple enquiries will always be a red flag to lenders. They will know that you’ve been rejected many times because of your bad credit score.
My credit rating is much better after I applied the methods above. I also got my pre-approval loan request approved and learned a lot about it from Clean Credit. You should check it out, too.