Pre-qualification: Meaning of pre-qualification?

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What does pre-qualification mean?

Pre-qualification is an unofficial estimation of how much money a lender is willing to give you based on information collected from you. This estimation is given before a borrower is pre-approved for the loan or mortgage. Some lenders use pre-qualification as a marketing tool to attract many customers.

Some of the information used in this process include but not limited to the credit score, credit history, current financial standing, etc.

Why did I get a pre-qualification letter?

Pre-qualification can be done from information the borrower gives to the lender or information the lender collects from an individual without even knowing it.

For example, if you apply for a mortgage, the lender will ask you some questions to determine your creditworthiness. In addition, these questions will help the lender to determine how much they can lend you.

Some of the questions you will be asked will include your current job and how much you make, your credit score, current mortgages and loans you have, etc.

After putting this information into the system, your lender will tell how much you are pre-qualified for.

Another way a pre-qualification can be done is when it is used as a marketing tool. You probably received a letter in the mail telling you that some loaning company pre-qualified you for a $30,000 loan. Or a credit company that you never heard of pre-qualified you for a credit card. This is nothing more than a marketing tactic.

>>MORE: Pre-Approval Letter: What Is A Pre-Approval Letter?

What should I do after receiving a pre-qualification letter?

Being pre-qualified does not mean that you have been approved for the service. You will still have to go through official approval steps where the lender will examine your information thoroughly. The lender will most likely ask you to provide more information.

So, what should you do next after being prequalified?

Usually, the pre-qualifying company will include in the letter what you should do for official approval. Some of this information will include a number you must call or a website where you can sign up.

If it is a service you applied for and has been pre-qualified, you can move to the next step. You can talk to your mortgage lender about your next step as well.

Pre-qualification is the first green light for those who are applying for loans and mortgages. This means that there is a high chance you will be approved for the service. At this point, you must put together every document needed for the next step.

On the other hand, if you have been pre-qualified for something you don’t need and did not apply for, you can ignore the request.

NOTE: You must destroy the letter you received from the lender as it will contain your personal information. Without proper disposal, your information could end up in the wrong hands.