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This article was updated on September 8, 2023. Prescreen, prequalification and preapproval. The terms sound similar, but lenders beware. These credit solutions are quite different, and regulations vary depending on which product is utilized.  Let’s break it down…  What is prescreen?  Perhaps the most reliable mailbox tenant, thick envelopes splashed with “limited time offer” or other flashy designations offering various card and credit products – otherwise known as prescreen offers – are a mainstay in many households.  Prescreen is a process that happens behind-the-scenes where a lender screens a consumer’s credit to determine whether to extend a firm offer of credit. The process takes place without the consumer’s knowledge and without any negative impact to their credit score.  For lenders and financial institutions, credit prescreen is a way to pick and choose the criteria of the consumers you want to target for a particular offer – often in the form of better terms, interest rates or incentives. Typically, a list of consumers meeting specific credit criteria is compiled by a Credit Reporting Agency, like Experian, and then provided to the requesting lending institutions or their mailing service.  In other words? Increase response rates and conversion by targeting the right consumers and eliminating unqualified prospects. Additionally, prescreening consumers also reduces high-risk accounts, targeting the best prospects to reach them at the right time with the right offer for their needs.  Gone are the days of batch-and-blasting. It’s expensive and a challenge for constantly limited marketing budgets. Prescreen decreases acquisition and mailing costs by segmenting a lender’s prospect list. In one case, a lender identified more than 40 thousand loans, representing $466 million in loan growth opportunities, after using digital prescreen.   Governed by the Fair Credit Reporting Act (FCRA), lenders initiating prescreen campaigns for credit products must also adhere to certain rules. What qualifies one of these campaigns?  A firm offer of credit  An inquiry posting is required (though it is a “soft” inquiry)  Consumers also have the option to opt out of preapproved and prescreen credit offer lists  In addition to acquisitions via direct mail, there are various types of prescreen tailored to the multiple channels where marketing takes place in today’s world. For example, Instant Prescreen can increase new account acquisitions by performing the preapproval process in seconds, while the customer is on your website, on the phone with you or at your business.  Similar to how you might screen calls on your cell phone by letting them go to your voicemail inbox or screen candidates’ resumes before inviting them for an interview for an open position at your company, a prescreened credit offer is not much different. Focusing on your audience that is most likely to respond to your offers is an easy way to increase your ROI and should be considered a best practice when it comes to your marketing efforts.  What is prequalification?  Prequalification, on the other hand, is a consumer consent-based credit screening tool where the consumer opts-in to see which credit products they may be qualified for in real time at the point of contact. Unlike a prescreen which is initiated by the lender, the prequalification is initiated by the consumer. In this instance, envision a consumer visiting a bank and inquiring about whether they would qualify for a credit card. During a prequalification, the lender can explore if the consumer would be eligible for multiple credit products – perhaps a personal loan or HELOC. The consumer can then decide if they would like to proceed with the offer(s).  A soft inquiry is always logged to the consumer’s credit file, and the consumer can be presented with multiple credit options for qualification. No firm offer of credit is required, but adverse action may be required, and it is up to the client’s legal counsel to determine the manner, content, and timing of adverse action. When the consumer is ready to apply, a hard inquiry must be logged to the consumer’s file for the underwriting process.   With Experian’s Prequalification, you can match prospective customers with the right loan products at the point of contact, allowing you to increase approval rates and ROI.  How will a prequalification or prescreen invitation/offer impact a consumer’s credit report?  Inquiries generated by prequalification offers will appear on a consumer’s credit report. For “soft” inquiries, in both prescreen and prequalification instances, there is no impact to the consumer’s credit score.  However, once the consumer elects to proceed with officially applying for and/or accepting a new line of credit, the hard inquiry will be noted in the consumer’s report, and the credit score may be impacted. Typically, a hard inquiry subtracts a few points from a consumer’s credit score, but only for a year, depending on the scoring model.  Learn more about Prescreen | Learn more about Prequalification 

Consumer debt topped $17 trillion in the first quarter of 2023 — an increase of almost $3 trillion compared to 20191 — with challenging inflation levels, increases in consumer demand and low unemployment levels leading consumers to spend.2 A significant portion of mortgages, auto loans and leases, credit card debt and student loans aren't paid on time. Recent data reveals that 2.6 percent of accounts in the U.S. are delinquent1, with 175 million consumer credit reports showing past-due accounts.3 More debt means more pressure on collection agencies, requiring effective strategies to collect on delinquent accounts. Implementing effective debt collection strategies is especially crucial in the face of challenges like staff shortages, regulatory pressures and the declining success of outbound calling.4 The approach to successful debt collection has changed. Debt collectors and agencies that implement these debt collection techniques and debt recovery tools can improve their performance and bottom line. Debt collection techniques that work Leverage data Outdated approaches to collections ignore consumer contact preferences. Research shows that credit card customers with overdue balances prefer to be contacted via email or text (SMS) over phone calls. Among those with low credit scores and balances under $1,000, 56% preferred emails compared to 18% who preferred to be contacted about their delinquent debt over the phone.5 Data analytics allow you to segment customers based on the amount owed, payment histories, credit scores and past behaviors. This information makes it easier to target those most likely to repay their debt and offer personalized, pre-approved debt solutions. Customers with delinquent debt who preferred digital contact over traditional channels, like phone and mail, were up to 30% more likely to make a payment when debt collectors made contact through a digital channel.4  By leveraging data and analytics, you can create a contact management strategy that increases efficency and profitability. Embrace automation Using digital tools can help streamline the debt collection process. Automation, data, analytics and artificial intelligence (AI) make it easier to create customer profiles and enhance account prioritization.4 Incorporating self-service debt collection options is also essential. Customers want to learn about their options, set up their payment terms and repayment schedules and address their debt at a convenient time via their preferred platform. Digital approaches can be helpful when recovering payments on accounts that are more than 30 days overdue. Research shows that 73% of customers contacted via digital channels for overdue accounts made at least a partial payment compared with just 50% who were contacted via traditional channels.6 Overall, digital-first approaches have been linked to a 25% increase in the resolution of accounts that are more than 30 days past due, a 15% reduction in collections cost and customer engagement levels that are five times higher than traditional collections methods.7 Investments in automation and other digital tools are necessary to replace outdated methods of debt collection that don’t put customers first or place an extra burden on staff. Prioritize the customer experience Leveraging data for customer segmentation is not the only way debt collectors can increase recovery rates. Delivering personalized debt solutions that are proactive, fair and customer-focused is also essential to achieving higher recovery returns.5 Predictive analytics provide insight into customer behavior, making it easier to identify those who need additional support and allowing debt collectors to be responsive to their needs.5 Collections used to be a linear process, but with customer migration to digital — with 64% of consumers using more than four devices per day — collectors need to rethink their approach.8 Consumers expect convenient interactions and relevant communications. Debt collectors that prioritize omnichannel communications can make debt repayment more convenient, resulting in improved customer retention.  Remain compliant Digital tools have made it easier for debt collectors to connect with consumers, but legal compliance is still essential. In 2021, the Consumer Finance Protection Bureau (CFPB) passed Regulation F  (Reg F) to govern electronic communications for debt collections. The regulations state that electronic communication, including email, text messages and social media, are allowed with direct consent from the consumer; limits on call frequencies do not apply to electronic communications but contacting consumers at inconvenient times and general harassment are still prohibited. Opt-out notices that are clear and prominent are required in all electronic communications.9 Predictive analytics and process automation can also play a role in minimizing regulatory risk by reducing gaps in the contact strategy and helping debt collectors avoid fines. Debt collectors face significant challenges in recovering delinquent debt. A digital-first strategy that prioritizes the customer experience while remaining compliant is essential.  Why partner with Experian Increased automation, self-service processes and individualized approaches allow you to focus on accounts with the greatest recovery potential while minimizing charge-offs and ensuring compliance. Implementing an efficient and effective collections prioritization strategy can require a lot of work, but you don’t have to go at it alone. Experian offers various debt collection solutions that can help optimize processes and free up your organization’s resources and agents’ time. Learn more about our debt collection techniques   1Federal Reserve Bank of New York. “Quarterly Report on Household Debt and Credit." 2Experian. “Average Consumer Debt Levels Increase in 2022."Published February 24, 2023. Accessed July 31, 2023.3Consumer Financial Protection Bureau. “Market Snapshot: An Update on Third-Party Debt Collections Tradelines Reporting.” Published February 2023. Accessed July 31, 2023.4McKinsey & Company. “Going digital in collections to improve resilience against credit losses.” Published April 29, 2019. Accessed July 31, 2023.5EY. “Five ways banks can transform their collections processes.” Published November 19, 2020. Accessed July 31, 2023.6McKinsey & Company. “The customer mandate to digitize collections strategies." Published July 29, 2019. Accessed July 31, 2023.7McKinsey & Company. “Holistic customer assistance through digital-first collection.” Published May 21, 2021. Accessed July 31, 2023.8Consumer Finance Protection Bureau. “1006.6 Communications in connection with debt collection." Published November 30, 2021. Accessed July 31, 2023

In the fast-paced world of lending and financial services, digital income verification processes play a crucial role in assessing customer eligibility and mitigating risk. However, not all verification methods are created equal. Let's delve into the differences between instant, permissioned, and manual income and employment verification, and their unique characteristics, benefits, and drawbacks. Instant verification: Real-time insights for seamless decision-making Instant employment and income verification is a game-changer in the lending industry. It provides immediate insights into a customer's financial information, allowing lenders to make real-time decisions. This real-time access to data streamlines the decision-making process, enabling lenders to deliver a seamless and frictionless customer experience. The advantages of instant employment and income verification include: Speed and efficiency: Instant verification eliminates the time-consuming process of manually gathering and analyzing data. This enables lenders to expedite loan approvals, reducing customer waiting times significantly.  Enhanced user experience: By delivering real-time results, instant verification enhances the overall customer experience. Customers can complete their applications quickly and effortlessly, leading to increased satisfaction and higher conversion rates.  Reduced risk: Real-time verification allows lenders to assess applicant information promptly, maintaining the security and integrity of lending processes.  Permissioned verification: Empowering customers in their digital experience  Permissioned verification gives customers the ability to grant access to their financial information directly from their payroll or bank accounts. This method is valuable because it keeps customers within their digital experience, eliminating the need for manual document submission or authentication. The benefits of permissions verification include: Convenience and speed: By granting permissioned access, customers can automate income verification and avoid the hassle of uploading or submitting pay stubs manually. This saves time and effort, resulting in a faster verification process.  Increased coverage and reduced abandonment: Permissioned verification ensures a higher coverage rate by minimizing the potential for customer abandonment during the application process. Since the information is retrieved seamlessly, customers are more likely to complete the application without frustration.  Privacy and control: Customers retain control over their data by explicitly granting permission for access. This enhances transparency and empowers individuals to manage their financial information securely.  Manual Verification: A last resort with high friction  Manual verification is a traditional method that involves time-consuming and costly processes. It requires lenders to manually collect, review, and verify documents provided by the customer. This method should be reserved as a last-ditch effort when instant and permissioned verification options are not feasible. There are several drawbacks to manual verification, including: Time-consuming: Manual verification involves significant manual labor, which leads to longer processing times. This delays loan approvals and can negatively impact the customer experience.  High cost: The labor-intensive nature of manual verification incurs higher operational costs for lenders. These costs can potentially trickle down to customers in the form of higher fees.  Increased friction: Customers must go through the inconvenience of gathering and submitting physical documents, potentially hindering the overall loan application process.  Level-up your verification experience The differences between instant, permissioned, and manual verification are important to understand. As technology continues to evolve, instant and permissioned verification methods are poised to become the norm, transforming lending processes and fostering greater efficiency and customer satisfaction. Lenders must embrace these innovative verification methods to stay ahead in the competitive financial landscape and provide an exceptional digital income verification experience for their customers.  To learn how Experian can help you transform your verification experience, visit us as experian.com/verify.   *This content has been created by an AI language model and is intended to provide general information.