When NextCard Inc. hooked its "credit-o-matic" machine up to the Internet in December 1997, the company's tiny staff had an office pool to guess how many customers would actually use the clever software to get instant credit approval and transfer outstanding balances to NextCard.

"We were obviously scared that it wouldn't work, and that the whole thing would just flop," recalled Jeremy Lent, chief executive of the San Francisco start-up. "But the very first day we looked at the results, we were blown away. This is actually working. People are transferring their credit card balances to us."

What I call the "credit-o-matic" machine is NextCard's system for automating, personalizing and optimizing credit applications via the Internet. It illustrates how online marketing is becoming more surgical and personal in ways that can boost the bottom line for businesses, by helping them identify more profitable customers and offering them better deals--and withholding those offers from people who don't make the grade.

Founded by direct-marketing whizzes from the credit card industry, NextCard is one of the most aggressive credit card marketers on the Internet, second only to Bank One Corp.'s First USA in the volume of its online advertising. NextCard is more innovative, though, because it is ahead of most Web companies in making sense of and responding to "clickstream" data--who is clicking on which links and why.

While most Web sites have trouble going beyond a simple count of visitors or pages viewed, NextCard has nearly 20 people with PhDs in applied statistics crunching and cross-referencing data--not only about which Web advertisements customers clicked on, but how large their credit balances are, how willing they are to transfer them in exchange for lower interest rates and what their future purchasing behavior is likely to be.

Already, the company has created advanced statistical models to predict where to find debt-happy customers and how to persuade them to drop a NextCard plastic card into their wallets.

The idea is to replace the inefficient carpet-bombing of direct snail mail--with its low response rate and high annoyance factor--with a more consumer-friendly campaign in which ad dollars are spent on Web sites that yield lucrative customers. For their part, consumers (assuming they qualify) get more choice on rates, rewards programs and even personalized photos on their plastic.

NextCard, which sold its first stock to the public in May, has posted ads that are viewed by millions of people at hundreds of Web sites every day. Customers who click on an ad land on www.nextcard.com, where they are invited to type in their name, address, income and Social Security number. Within eight seconds of clicking the submit button, customers get a yes or no on their creditworthiness.

If yes, they see a page with choices for interest rates and other pricing terms customized based on their credit profiles. In the background, NextCard's computers have contacted the credit bureaus to analyze their credit histories and current balances, which are presented on screen. Terms grow more favorable depending on a person's willingness to transfer balances, which can be done with a few clicks.

Therein lies a big difference from what direct mailers do offline. For years, credit card companies have pre-screened customers for creditworthiness and mailed letters declaring pre-approval for cards, but they do so with less information about each customer than NextCard is able to get. That's because federal law requires consumer authorization for release of balances and similar personal credit details.

Consumers give that permission to NextCard when they fill out the short application form; that instant access to balance information is what allows NextCard's computers to do customized pricing.

Getting balances is the ultimate goal of credit card companies, because at their pricey interest rates it's how they make their money. So everything about NextCard's Web site is designed to encourage people to transfer debt. Some customers are offered lower (and specially calculated) interest rates than they're paying or a double-reward-points program. NextCard partners with airlines and other merchants, for example, to offer the equivalent of twice the regular frequent-flier miles to anyone who moves balances.

NextCard also offers online account management and software that makes it easy to buy goods with one click from Web stores.

NextCard's computers are constantly analyzing each customer's potential yield from finance charges, and cross-referencing that with the Web sites that referred them. Sites that refer fewer profitable customers tend not to get repeat business from NextCard. Those that refer high-yield customers not only get more advertising, but also maybe a long-term deal in which NextCard becomes the site's exclusive credit-card advertiser.

NextCard measures a site's overall profitability in terms of the ratio between ad dollars spent and total projected revenue from referrals. "The difference can be as much as 30 times between sites," Lent said.

A California bank currently issues NextCard's cards, but the company plans to start its own online bank in the fall, part of a larger trend toward one-stop shopping for financial services on the Web.

Forrester Research, the Massachusetts consulting firm, predicts "hyper-growth" in the online credit card market, with one out of six credit cards being issued online within five years. And while NextCard was first, it is no longer alone in using the Internet to communicate in real time with credit card customers.

Last fall, First USA began offering similar instant online credit decisions. Providian Financial Corp., the direct-marketing credit card company where Lent once worked, recently did too. Providian offers quick, personalized terms, though each consumer typically gets only one offer. First USA, meanwhile, offers an "e-card" that gives users 5 percent rebates on purchases from participating online merchants.

So far, NextCard has more than 100,000 customers and is attracting nearly 10,000 new applicants a day. It boasts a credit approval rate of nearly 20 percent--in line with the industry average--but its customers have an average balance about $2,500, or nearly twice the industry average.

Regardless of how NextCard fares in the electronic credit wars--and it already faces stiff competition from many quarters--its Web strategy shows the advantages companies can reap by mastering the mining of the Internet's consumer data trails.

Leslie Walker's e-mail address is walkerl@washpost.com.