The uses of credit scores in prospecting

By: John Ulzheimer
Date: June 25, 2020

Today when you check your mailbox, it’s likely you’ll find at least one credit card offer waiting for you. What you just received is referred to as a credit card solicitation, and billions of those envelopes are mailed each year. The question is how and why are you receiving those offers?

The answer is relatively simple. Credit card issuers use direct mail as a way to prospect for new customers. All of those card offers fall into one of two categories: invitations to apply (or “ITAs”) and preapproved offers of credit.

The more common type of offer, the preapproved offer of credit, is a firm offer of credit. If you were to fill out the enclosed application and return it, approval would be practically guaranteed. The reason credit card issuers are able to send out so many credit card offers without any sort of relationship with the consumer is a sophisticated use of credit scores called “prescreening.” Here’s how the process works.

  1. The card issuer decides to mail out preapproved credit card offers to people who meet certain minimum criteria. The lender then works with one or more of the credit reporting companies – Equifax, Experian or TransUnion (also known as the major credit bureaus) – to compile a list of consumers who meet or exceed those criteria.

    Selection criteria can fill dozens of pages, but they might include ZIP code information corresponding to a lender’s geographical region, as well as requirements such as these:

    • Minimum VantageScore credit score of 740

    • Average age of accounts in excess of 60 months

    • No late payments in the past 24 months

    • No credit cards opened in the past 12 months

    • No collections on file for the past 5 years

  2. After the credit bureau receives the selection criteria, they provide the card issuer with “counts,” the total number of consumers who meet the criteria. That list becomes what’s formally referred to as the “mailable universe.” The card issuer then decides how many offers it wants to mail from the total universe of prospects. A few weeks later, if you fall within the criteria, a credit card offer will land in your mailbox. Your credit report will also reflect the card issuer’s request for the credit score it used to identify you as a candidate for the offer.

The value of using a credit score as part of the prescreen selection criteria is twofold. First, the use of a credit score in prescreening gives the credit card issuer the ability to eliminate any prospects that do not fit the risk requirements for its business strategy and the specific product it is offering. In this way, a credit score in prescreening can act as an elimination variable, much as it can when consumers proactively apply for credit card accounts.

Second, the credit score acts as a proxy for elements of a credit report that indicate elevated credit risk. Lenders don’t need to detail every conceivable negative credit-file entry they want to screen out, because it’s very likely the credit score minimum requirement will exclude, for instance, consumers with undischarged bankruptcies, or excessive percent of credit limit used.

We all know credit scores are useful to lenders when they are considering loan applications, but credit scores are also versatile and valuable tools for marketers of credit cards and other loans.