Prequalification: It isn’t just for mortgages anymore
Prequalification has long been used in the mortgage arena to assist home buyers with understanding the dollar amount they could be eligible to borrow and the various mortgage options available to them. It’s a great no-cost tool to keep consumers from finding their dream home, only to discover they can’t afford it.
It’s also used to help consumers find credit card products they may qualify for, alleviating similar situations where people apply and are subsequently declined.
“The problem with credit card applications and the sales process is that decline rates are high. Consumers often don’t understand the differences between cards or credit requirements and apply for products they wouldn’t qualify for,” says Tiffani Montez, retail banking senior analyst for Aite Group. “Prequalification gives them realistic options, without having a negative impact on their credit score.”
Many card issuers offer prequalification services on their websites that entail completing a short form that typically requires full name, address, date of birth, and the last four digits of your social security number. Some ask the type of card benefit you prefer, how you would rate your credit, or if you are already an online banking customer.
After completing the prequalification application on a few of these sites, here are a few takeaways:
- The process happens in realtime. All of the sites proclaim that you can find out in 60 seconds what you’re prequalified for. Once your data is entered, the prequalified offers appear in approximately 10 seconds or less.
- Your credit score is not impacted, because it isn’t a firm offer of credit.
The offers are tailored by the type of rewards you are interested in—if you selected a preference.
- In many cases, existing relationships with the provider are not taken into consideration. For example, my top prequalified card offer on one of the sites was one I have held for several years.
Overall, it is a straight forward process with good results. It drives people to the products they qualify for by removing the guesswork. “Prequalification could be described as a recommendation engine,” says Montez. “Issuers can look to see if you already have offers, ask what your credit health is and your interest in rewards programs, then make recommendations based upon what you have told them.”
“Capital One does a really nice job outlining what kind of credit you need for each of their products,” Montez adds. “If you don’t have the right guidelines in place to make people the right offers, that leaves dissatisfied customers. That is the last thing an issuer wants, especially when a consumer has come directly to your site looking for a product.”
There’s definitely a balance between who you make offers to and the risk you are willing to take. Finding the sweet spot between risk and revenue is something we will discuss in our next post.