How Does a Company Prescreen Credit Reports?
You may receive enticing credit card and insurance offers in your mailbox if you have a high credit score. All you need to do to redeem them is verify some information over the telephone or on an online or paper form. Companies check your creditworthiness before extending such offers in a process called prescreening.
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Purpose
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Banks, loan companies and insurers prescreen credit reports to expand their customer base. Prescreening lets them choose potential customers who meet certain demographic and financial criteria, according to the Federal Trade Commission (FTC). This lets them target their offers to people who are already qualified. Most prescreened offers based on credit report review come through postal mail, although some companies use telemarketers.
Process
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Companies prescreen credit reports in two ways, the FTC explains. Usually they make a list of criteria like income level, age and minimum credit score. The credit bureaus screen their reports and sell the companies a list of relevant people. Sometimes a company will give a list of consumers to the credit bureaus and ask them to screen it, indicating which people meet certain demographic and financial criteria. The credit bureaus are paid for these services.
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Effects
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Prescreening shows up on your credit report, but the Credit Matters credit education library states it does not affect your score. Prescreening is done with a soft inquiry, which means you did not apply for an account or otherwise initiate the action. Lenders and others who review your credit reports see it as neutral. This differs from a hard inquiry, which happens when you fill out an application. The FICO credit score company explains that hard inquiries deduct up to 5 points from your score.
Benefits
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Prescreened credit and insurance offers are usually competitive because the companies want to entice you into doing business with them. For example, the insurance policy might not require a health checkup or the credit card might have a zero percent interest rate for the account's first year. This is useful if you are seeking a new account or have higher-interest cards from which you can transfer your balance.
Disadvantages
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Prescreening offers expose you to identity theft. Criminals can steal credit card offers from your mailbox if it doesn't have a lock. They can also remove them from your trash if you don't shred them before disposal. The thief can redeem the offer, steal the card from your mail when it arrives or have it sent to an alternate address, then rack up thousands of dollars of purchases under your identity. You won't know about the card unless you review your credit reports or have an application denied because of damage to your credit record.
Solution
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You can prevent companies from prescreening your credit reports through the form or toll-free telephone number on the optoutprescreen.com website, the FTC explains. This website is run by the credit-reporting agencies to let you protect your privacy if you don't want offers. You can opt back in later through the site if you are in the market for loans, credit cards or an insurance policy.
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References
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