Now that you've actually responded to one of those offers and filled out the application and mailed it back in, the issuer will commonly pull what's called a back-end report to set the final terms of the card, because most of the terms that are sent in the marketing pieces are conditional terms -- you know, up to $50,000, a rate as low as 7.9 percent. They're tempting you, but they're not actually giving you a firm offer until you actually fill out the application and mail it back in. They'll pull a back-end credit report and/or another credit score.
How is a back-end report different from a regular credit report?
It's just a credit report -- back-end just refers to where in the process it takes place, it means it's on the back-end of the prescreen process. But it's the same credit report that you and I can see when we go to pull our own credit reports. It's no different.
So, they'll use a traditional FICO score in that case as well. There's a variety of different FICO scores, (called) the industry-adjusted versions of FICO. There's a bank-card version, an auto loan version, a personal finance version and then an installment loan version. Most of the large credit card issuers use the bank-card version, so even though it is a FICO risk score, it's the bank-card-adjusted version of it, meaning that it's more refined for bank-card issuers.
How is that different from the FICO scores that consumers can get?
The one that consumers can get is just the general-use FICO score, so kind of the vanilla version of the FICO score. There is nowhere that a consumer can get the bank-card version. It's not for sale anywhere -- myFICO, or at any of the bureaus. It's simply not a product that's sold to consumers. Really the only difference between that score and the general FICO score is that it modifies what your score would be based on -- expected performance with a bank card. It's kind of like a semi-customized model.
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Would there be a huge difference between the two scores?
Not huge -- when I think huge, I think 100, 200 points. You're likely to see the score be within plus or minus 20, 30 points. It's not a colossal difference, but it is a difference.
Using the credit card
Now we've just processed this application that was mailed back to us. We've used a score to set the final terms and now we've mailed the card to the consumer. The consumer calls in and activates the card and goes to a merchant and uses it for the first time. The transaction is scored. The score is in many cases used to determine whether or not the issuer wants to approve the transaction. In other words, is Leslie McFadden trying to buy a $5,000 television using a credit card with a $1,000 credit limit? Well, they're going to decline that transaction because you failed their criteria.