Question: Reading one of your informative columns revived memories of the "pre-approved credit card" network. How do they get my name? I was surprised to receive such an offer. Would you please let me know how they (the banks and non-bank issuers of credit cards) get names of pre-approved customers? How does the pre-approved system work? Most bankers, themselves, don't seem to know.--A.P.
Answer: It gets to be a sort of fascinating game after a while--trying to guess, before you open the solicitation letter, just how much Bank X thinks you're worth, as compared to how much Bank Y, a day later, thinks you're worth.
As you might have suspected, this "You have been pre-approved for a credit line of . . ." (fill in anything from $2,000 to $35,000) isn't nearly as casual as it appears to be on the surface.
The old days of sending out credit card applications willy-nilly have gone by the board. And playing a leading role in the newer, more sophisticated compilation of "pre-approved" solicitations are such credit-reporting firms as TRW Information Services. While better known for its credit reporting--supplying corporate members with a rundown of the credit applicant's bill-paying habits--TRW's subsidiary, Target Marketing Service Division, is also deeply involved in what is known as "pre-screening."
"There are several ways this is done," says Susan Murdy, TRW's director of public affairs for credit data. "The member-bank will frequently submit to us a list of people it wants to contact from its own data bank (individuals with whom the bank has already had some sort of favorable contact). Or it may give us a list that's been compiled by any of several marketing companies."
Such marketing companies can (at so many dollars per 100 names) come up with a mind-boggling breakdown of consumers who, in the past year or two, have made purchases of goods or services that are highly suggestive of their income levels: who have, for instance, bought homes at the $250,000 price or better; who have bought imported cars costing in excess of $50,000; who have booked passage for 3-week vacations in Europe, or who have active accounts with local stock-brokerage firms.
Marketing firms may also, as author Michael J. Weiss has described in his recent book, "The Clustering of America," avail themselves of the target-marketing services of the Claritas Corp., which has honed demographics to such a fine art that a family's income level, taste in clothing, cars, eating habits and spending and saving tendencies can be accurately predicted from their Postal Service Zip Code alone.
Based on lists like these, the bank, Murdy said, can then submit such a list to the TRW subsidiary for pre-screening and, thanks to the computer, certain names can be weeded out.
"Such things as bankruptcies or chronic delinquencies can be spotted--depending on criteria specified by the member," she said. In other instances, the member simply asks TRW to supply a raw list of names, also conforming to specified criteria (such as bill-paying habits).
"It's important, though, for the consumer to know," Murdy says, "that these listings show up on his or her credit report only as 'promotional inquiries,' which only the consumer will see if he orders a copy of his own TRW report. They don't show up on a copy of his credit report supplied to any credit grantor."
The reason for this is simple: A credit grantor (such as a car-financing company or a department store to which the consumer has applied for credit) will normally view too many credit inquiries on an applicant's record as a negative because it suggests that he or she has applied for a suspiciously high number of purchases in a relatively short time. These "promotional inquiries," over which the consumer has no control, are, thus, never seen by a credit grantor.
Q: With insurance rates high and climbing, I am confused as to how much auto insurance coverage I need. I am retired, own my own home worth about $150,000 and have around $75,000 in cash and other assets. I have an old car and my liability coverage is $50,000, with $100,000 and $25,000 for bodily injury and property damage. Do I need this much coverage?--F.S.
A: Yes, you're not over-insured. The absolute floor of coverage is dictated by the state, of course, which requires that every driver must furnish proof of financial responsibility--usually insurance amounting to at least $15,000 per person, $30,000 per incident (for bodily injury) and $5,000 for property damage. In its latest rundown on auto insurance, however, Consumer Reports recommends no less than $25,000 in property damage, which is exactly what you have. Your greatest vulnerability is in being sued for that $150,000 home and $75,000 in other assets. It wouldn't hurt to hike your coverage enough to cover a "worst-scenario" situation.
While you discussed your liability coverage, you haven't mentioned what coverage, if any, you have concerning collision or comprehensive damages.
Collision, as the name implies, is physical damage to the car sustained in an accident. Comprehensive covers virtually everything else, such as damage during towing, but primarily loss from theft and vandalism.
If you are driving an "old car," as you say, you probably don't need either collision or comprehensive. The absolute limit here, Consumer Reports says, is seven years--if your car is at least seven years old, neither coverage is worth it.