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Instant prescreen for credit cards

By Leslie McFadden · Bankrate.com
Thursday, September 2, 2010
Posted: 2 pm ET

Have you ever been told by your bank during a branch visit that you've been preapproved for a credit card? How about while paying for a purchase at a retail store? In the future, even consumers that have no credit file at the major credit reporting agencies may receive such offers for credit cards.

Those offers are made by possible instant prescreening technology, which isn't to be confused with most "preapproved" offers that arrive in the mail.

"The majority of them are actually invitations to apply," says Eric Lindeen, marketing director at Zoot Enterprises Inc., a Bozeman, Montana-based provider of credit decisioning and loan origination solutions. That is, the consumer must fill out an application and pass another credit check before getting the card. Based on the final credit check, the applicant may end up getting approved at a higher interest rate or declined.

"With an instant prescreen, there is no application because the credit evaluation has already occurred," says Lindeen. The consumer just has to accept the terms to obtain the new card, with no additional credit check required.

Instant prescreening has been around for almost two decades, he says. At the moment only three of the top 10 U.S. banks use instant prescreening to make offers to consumers, Lindeen says, with credit cards being the most common lending product that prescreening is used for.

So, what's new?

Recent advancements have made it possible to use alternative data sources to evaluate potential customers that have a limited credit history. Zoot Enterprises recently incorporated the update into its instant prescreen tool called zAcquire.

So far, the company has three data partners, including LexisNexis. Supplemental data from these vendors, such as utility records, fraud data, address changes and rent payments can provide context to the credit score.

For subprime and prime customers, the alternative data can highlight changes in finances not captured by a credit report or credit score. Delinquent cell phone bills might not appear on a credit report, for example, but can indicate reduced ability to pay on time.

As their press release explains, the supplemental data helps lenders to "grant credit to a greater number of consumers, without changing their risk tolerance, and gain insight regarding the most appropriate credit product to offer."

Lindeen notes that in testing the additional data provided a 60 percent lift in accuracy for "thin file" consumers and a 15 percent lift for prime customers.

How do you know if you've been instantly prescreened?

With just a name and address, a company can prescreen a person for offers, using credit information and alternative data. The process is automated and takes mere seconds. Lindeen says it could take place at the point of sale in a store, with a teller at a bank branch or at checkout with an online retailer -- "basically any place where a potential lender would know who they are."

The analysis of all that data isn't exactly announced to the consumer. "It happens in the background and the consumer doesn't know that a prescreen offer is being made," says Lindeen. "If they pass the criteria an offer is simply made out of the blue."

If you don't qualify for a credit card offer, you won't even know that the process occurred. The credit check will not leave a hard inquiry on your credit report unless you accept the company's offer of credit.

Convenient or alarming?

What do you think about instant prescreening? Do you like the concept of receiving a firm offer of credit during checkout or does the process seem invasive? Share your thoughts in the comments section.

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