Preapproval: Your First Step Toward Smarter Borrowing

Whether you’re buying a home, financing a car, or applying for a personal loan, preapproval is more than just a formality—it’s a powerful tool that can shape your financial journey. Let’s break it down and explore why your credit score plays such a big role.

What Is Preapproval?

Preapproval is a lender’s conditional offer to loan you a specific amount of money based on a review of your financial profile. It’s not a guarantee, but it’s a strong indicator of your borrowing power.

To get preapproved, lenders typically review:

Your credit report and score
Income and employment history
Debt-to-income ratio
Assets and savings

Once approved, you’ll receive a preapproval letter—a document that shows sellers or dealers you’re a serious and qualified buyer.

Why Preapproval Matters

Sets a Realistic Budget
You’ll know exactly how much you can borrow, which helps you shop smarter and avoid disappointment.
Strengthens Your Offers
In competitive markets, a preapproval letter can give you an edge over other buyers.
Speeds Up the Process
Much of the paperwork is already done, so final approval can move faster once you make an offer.
Uncovers Issues Early
If there are problems with your credit or finances, you’ll find out early and have time to fix them.

The Credit Score: Your Financial Report Card

Your credit score is one of the most important factors in the preapproval process. It’s a three-digit number that reflects how well you manage debt and repay loans.

What Makes Up Your Credit Score?

Most lenders use the FICO® Score, which ranges from 300 to 850. Here’s how it’s calculated:

35% – Payment History
Have you paid your bills on time?
30% – Amounts Owed
How much of your available credit are you using?
15% – Length of Credit History
How long have your accounts been open?
10% – Credit Mix
Do you have a variety of credit types (credit cards, loans, etc.)?
10% – New Credit
Have you opened several new accounts recently?

What’s a Good Credit Score?

Excellent: 800–850
Very Good: 740–799
Good: 670–739
Fair: 580–669
Poor: Below 580

The higher your score, the better your chances of getting preapproved—and at lower interest rates.

Tips to Improve Your Credit Before Applying

Pay bills on time—even one late payment can hurt.
Keep credit card balances low—aim for under 30% of your limit.
Avoid opening new accounts right before applying.
Check your credit report for errors and dispute any inaccuracies.

Preapproval is more than a number—it’s a sign that you’re financially ready to take the next step. And your credit score? It’s the key that can unlock better rates, smoother approvals, and more buying power.

Whether you’re just starting out or getting ready to apply, understanding how preapproval works—and how your credit score fits in—can make all the difference.