Thanks to powerful information-processing technology, businesseshave dramatically changed the way they market to theircustomers.

Rather than blindly sending messages to countless prospects –and hoping for a 2% response rate (at best) — messages can now betargeted to (and customized for) each individual candidate. Whilethis shift has spelled imminent doom for the U.S. Postal Service,it's been a boon to marketers.

Understanding which products a prospective customer is likely tobuy, and offering them incentives to do so, has become commonplace,greatly increasing response rates to promotion offers. Rewardscards are just one example of a customer's agreement to sharebuying habits in exchange for specific coupons or discounts on theproducts they buy most often. (We see you bought diapers today,here are some coupons for baby food).

Unfortunately, for loan officers, finance managers and otherslooking to extend credit, these targeted marketing programs fallshort — they may tell what a customer is likely to buy, but dolittle to reveal whether a prospect can actually afford it.

This limitation is especially acute with online commerce.Identity thieves, fraudsters, and the merely ineligible can hidebehind the anonymity of the Web, appearing exactly the same as acompany's best prospects.

Immediate access to information can improve a credit manager'sability to pre-screen, pre-qualify and ultimately qualifyprospective borrowers. Further, the ability to identify eachcustomer's fiscal eligibility (or lack thereof) can ensure from theonset a mutually rewarding transaction. Neither the customer norprospective lender waste time or good will consideringinappropriate offers. Products and services can be offeredexclusively to those customers best qualified to accept, with eachoffer (a credit limit for instance) customized for eachprospect.

Those charged with extending credit have long filtered theirprospects with the use of prescreening. Prescreening works in oneof two ways: first, a creditor may establish certain criteria, suchas a minimum credit score, and then ask a consumer reportingcompany for a list of those in its database who meet that criteria;or a creditor might provide a list of its potential customers to adata reporting company and ask them to identify those on the listwho meet the selected criteria.

Making risk assessments based on prequalifying prospects differsin subtle ways from pre-screening. Pre-screening prospects allows acredit manager or lender to offer a specific pre-approved product;(e.g. “you are eligible to lease this new car at the followingterms….”) whereas prequalification more directly involves thecustomer in the process.

Prospective customers can be invited to inquire which offer bestsuits their particular financial situation. This allows the lendingmanager to ask, “Would you like to see the types of financing thatyou might qualify for?” If the answer is yes, one or more creditoptions can then be offered.

Once presented with options, consumers can then decide whetheror not to proceed with a more formal credit application. Thisallows a business to suggest various products or services that bestmatch each customer's specific needs (and ability to afford).Consumers benefit by being in the driver's seat – they opt in tothe 0requalification—and can review their loan optionsbefore deciding whether or not to proceed toapplication.

Because prequalification in itself is not an actual applicationfor credit, it has no effect on the customer's credit score.(Prequalification is viewed as a “soft” credit inquiry, as opposedto actual credit applications, which are “hard” inquiries that mayimpact a credit score). Therefore, it's in both the vendor andcustomer's best interest to reserve a formal application for creditto those prospects most likely to ultimately consummate thetransaction.

Prequalify on Demand

When used online as a filtering tool, prequalification allowscredit managers to work in real-time to consider lending requests.This gives businesses (particularly Web-based businesses) theopportunity to offer their prospective customers a variety ofcredit options that prospects may qualify for based ontheir credit report and/or credit score.

When available on demand, the process of qualifying prospectivecustomers becomes seamless by providing immediate access totransaction information. This can greatly increase response ratesto offers by performing the filtering process in seconds, asopposed to days. Lending decisions can be made that lead toadditional business opportunities. For example, offers such forcredit or additional value-added products can be presented while aprospect is still on the phone with an agent, or online at aWebsite.

Regrettably, most businesses have had neither the time norbudget to access consumer financial data quickly enough to makecustomer prequalification practical as a real-time application.However these robust “decisioning” tools are increasingly beingdelivered via a decisioning-as–a-Service (hosted) environment.

Rather than investing their own capital toward data-analysissystems, credit managers are able to access credit screening toolson demand. Hosting allows prospective lenders to instantly filtereach potential transaction and make lending decisions in realtime.

Using sophisticated scoring techniques, multiple data sourcesand automated business rules within a hosted environment can alsohelp lenders make more appropriate, cost-effective lendingdecisions. Decisions can be made as to which applicants toprequalify or decline, tailoring the terms and offers to theapplicants according to their profiles.

This can also place more control in the customer-facingagent's hands while ensuring that decision processes remainconsistent across the business. Additionally, it can open a numberof cross-sell opportunities for current customers while filteringout the occasional bad apple.

Roger Ahernis Senior Director of Experian's Decisioning as aServicecapabilities.