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.
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.