The Fair Credit Reporting Act allows for seven different reasons to access a consumer’s credit report. Six of the seven require consumer consent. Prescreen is the only allowance where the consumer has not raised their hand. As a result, the lender’s obligation is to then provide the consumer with a firm offer of credit. Prequalification is different. It’s one of those other six reasons you can pull credit — and it’s at the consumer’s request. Therefore, no firm offer is required. Instead, once consumers raise their hands and you run the screen, if they qualify for a product you can present them with options. That communication may look more like an ITA than a firm offer of credit. You present consumers with the options they qualify for or a notification that they do not qualify for anything at this time and give them the opportunity to select an option. Once they choose an option, you can guide them (either online or in person) to your application process.
It’s important to include specific disclosures up front in a consumer-friendly tone, such as “Are you interested in finding out if you qualify for one or more of our credit card products?” Consumers would supply their name and address and in real time be screened against your criteria to determine if they prequalify for a product or products. Should the consumer not qualify, the lender can determine the type of response needed and refer the consumer to Experian. The following are examples of possible responses:
- “Maybe you’d be interested in …”
- “Check back with us soon.”
- “We’d like to assist you with understanding your credit profile.”
In any circumstance, no firm offer is required.
The best practices are online channel expansion using Prequalification, evaluating lending criteria to test down the risk continuum and event-based marketing.
We can take a vintage campaign and look at near-prime prospects whom you did not mail to and review specific performance trends. We also can perform an analysis of near-prime customers in your existing portfolio to see where they were prior to booking, at booking and now to understand the type of near-prime consumer you are engaging. We also can look at which consumers in your footprint in an expanded criteria definition are getting credit elsewhere and how they are performing with your competitors so that you can feel confident in strategies you would employ in this space.
We are hearing from lenders — both banks and credit unions that use it on their Websites — that they are seeing improvements in approval rates and better CPAs for the online channel. It’s enabling them to have better conversations with their internal risk partners regarding product growth strategies in the online world.
If you think about it, before the recession, online lead sourcing was growing. When you purchased one of those leads, you paid for it based on the number of accounts booked. That sounded like a great proposition until the funnel fed a lot of unqualified leads into the account acquisition process and the average approval rate ended up somewhere around 7 percent. People were just starting to try to solve that problem when 2008 hit and marketing budgets got slashed. Prequalification is the answer to this challenge. You have an engaged consumer, and there is no harm to his or her credit because the inquiry posts as soft. It’s also the ultimate lead for the lender since that consumer is engaged and now you know he or she is credit-qualified for whatever option you are presenting.
Event-based marketing can have a tremendous impact if you couple your segmentation strategy with your communication strategy — and by communication, we mean message. Channel expansion with regard to prequalifying Internet leads is the easiest to implement and can move the dial with minimal work on the lender side. However, a direct-mail near-prime strategy would provide the highest volumes in a short time period.
For near prime, we are seeing lenders implement trended products and services, which are attributes that assess a consumer’s performance over time and address the migration of risk scores and select credit attributes for ongoing account management. Many are creating unique subpopulations by product and developing account management strategies contingent on their risk tolerance within a product group. The strategies apply risk scores and attributes and compare and contrast trended performance.
The term “underbanked” refers to an individual or a business that relies heavily on checks and cash as a means of funding rather than on bank-related methods such as credit cards or loans. A subpopulation within the underbanked segment comprises consumers with thin files (fewer than two tradelines). VantageScore®1, Experian’s risk model, accurately evaluates credit risk for this consumer population.
1. VantageScore® is owned by VantageScore Solutions, LLC.