As industry experts are still unsure when the economy will fully recover, re-entry into marketing preapproved credit offers seems like a far-off proposal. However, several of the top credit card issuers are already mailing prescreen offers, with many other lenders following suit. When the time comes for organizations to resume, or even expand this type of targeting, odds are that the marketing budget will be tighter than in the past. To make the most of the limited available marketing spend, lenders will need to be more prescriptive with their selection process to increase response rates on fewer delivered offers.
Choosing the best candidates to receive these offers, from a credit risk perspective, will be critical. With delinquencies being suppressed due to CARES Act reporting guidelines, identifying consumers with the ability to repay will require additional assessment of recent credit behavior metrics, such as actual payment amounts and balance migration. Along with the presence of explicit indicators of accommodated trades (trades affected by natural disaster, trades with a balance but no scheduled payment amount) on a prospect’s credit file, their recent trends in payments and balance shifts can be integral in determining whether a prospect has been adversely impacted by today’s economic environment.
Once risk criteria have been developed using a mix of bureau scores (like the VantageScore® credit score), traditional credit attributes and trended attributes measuring recent activity, additional targeting will be critical for selecting a population that’s most likely to open the relevant trade type. For credit cards and personal installment loans, response performance can be greatly improved by aligning product offers with prospects based on their propensity to revolve, pay in full each month or consolidate balances.
Additionally, the process to select final prospects should integrate a propensity to open/respond assessment for the specific offering. While many lenders have custom models developed on previous internal response performance, off-the-shelf propensity to open models are also available to provide an assessment of a prospect’s likelihood to open a particular type of trade in the coming months. These models can act as a fast-start for lenders that intend to develop internal custom models, but don’t have the response performance within a particular product/geography/risk profile. They are also commonly used as a long-term solution for lenders without an internal model development team or budget for an outsourced model.
Prescreen selection best practices
- Identify geography and traditional credit risk assessment of the prospect universe.
- Overlay attributes measuring accommodated trades and recent payment/balance trends to identify prospects with indications of ability to pay.
- Segment the prospect universe by recent credit usage to determine products that would resonate.
- Make final selections using propensity to open model scores to increase response rates by only making offers to consumers who are likely looking for new credit offers.
While the best practices listed above don’t represent a risk-free approach in these uncertain times, they do provide a framework for identifying prospects with mitigated repayment risk and insights into the appropriate credit offer to make and when to make it.
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