Today I want to break down one of those concepts that gets tossed around in lending—positive and negative selection—but do it in a way that actually sticks. Because if you’re a marketer, a product person, or just someone who needs to explain this to a cross-functional team, you need a better mental model than “it’s a credit thing.”

So here’s the analogy I use: recruiting.

Hiring people is the cleanest way I know to make sense of selection bias in lending.

Let’s get into it.

1. Outbound vs. Inbound: How it shapes talent (and credit quality)

Think about hiring.

If you’ve ever run a search for a new team member, you know the drill. You can post a job online and wait for applicants (inbound), or you can have a recruiter go out and tap people who aren’t even looking (outbound).

Recruiters know something most hiring managers forget:

When you post a job, you get a flood of resumes from people who are actively on the market—maybe unemployed, maybe unhappy, maybe just desperate for a change.

Some are great. Many aren’t.

The mix is skewed.

But when you go outbound—headhunt people who are happily employed, not looking—you get a totally different pool.

If you compared 1,000 inbound applicants with 1,000 outbound targets, you’d see the difference in quality, experience, and fit.

Outbound is more work, but the yield is better.

Now, swap “candidate” for “borrower.”

Direct mail is outbound: you build a list, you target people who aren’t hunting for loans, you nudge them.

Website/app traffic is inbound: people are searching for credit, maybe because they need it now.

Here’s the twist:

The people who need money most—who are actively searching—are, on average, riskier than the people you find through outbound.

Same as recruiting. The best talent usually isn’t pounding the job boards.

That’s positive selection (outbound) and adverse selection (inbound) in action.

2. Price Signals: Low APRs (and high salaries) attract the best applicants

Let’s stay in the hiring analogy.

You’re looking for a Director of Affiliate Marketing. Top-tier. Maybe a dozen people in the country fit the bill.

You post two identical jobs:

• One at $100K

• One at $200K

Which one gets the best candidates?

It’s not even close.

The $100K posting might get desperate applicants, or people who don’t know their market value. But the best? They won’t bother.

They’ll see the comp and move on, or worse, wonder if you even know what you’re looking for.

Same with lending.

If you offer a personal loan at 19% APR and your competitor is at 9%, the best credit risks will flock to the cheaper offer.

Even small differences in price matter—12% vs. 14% can shift your applicant mix.

The best borrowers—like the best candidates—have options, and they exercise them.

3. Funnel Friction: How friction scares away the best, leaving you with the rest

Imagine two companies hiring for the same role. Here’s what their hiring processes look like:

Company A

• 6–8 weeks

• 20 interviews

• Homework, referrals, endless hoops

Company B

• 2 weeks

• A couple calls, one in-person day, decision

Sure, Company A gets more data on each candidate.

But there’s a catch:

The best people—the ones with options—won’t jump through all those hoops.

They’ll bail halfway, take another offer, or just ghost you.

Who sticks with the Company A (high friction) process?

People with fewer options.

Maybe they’re less qualified, maybe they’re desperate, maybe they just have the time.

Same thing in lending.

You add steps—income verification, document uploads, bank logins, whatever—to your funnel.

The best credit risks, the ones who could get a loan anywhere, bounce at the first sign of friction.

The folks who stick around? Often, they’re the ones who need the money most.

So yes, collect what you need for solid underwriting.

But if your process is heavier than your competitors’, you’re a magnet for risk—not filtering against it.

The Recap

Selection bias is real—and it’s shaped by channel, price, and process.

• Outbound (like direct mail) brings in stronger, lower-risk borrowers, just like recruiters find better talent by going after passive candidates.

• Price matters—a lot. If you’re not competitive, the best will pass you by.

• Funnel friction is a silent killer. Add too much, and you’re left with the riskiest applicants.

The next time you’re walking a “non credit person” through a positive or negative select dynamic, remember the recruiting analogy. It may help connect the dots.

Check out the Podcast version

E026 - Positive & Negative Select (Think Like A Recruiter)

Find the show here:

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About Us

Welcome to The Free Toaster! The newsletter for marketing pros at fintechs, banks, and lenders. 

Inspired by the free toasters banks used to give to each new customer, we’re here to help you acquire more customers at scale. We deliver fresh news, data, and insights to help you acquire more customers, minus the breadcrumbs.

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