New Research Shows Strapped Middle Class Struggling With Credit

Wednesday, March 29th, 2017

For folks who struggle with money, being approved for a credit card has long proved a challenge. And now a new study shows that 72% of Americans with nonprime credit scores are unable to charge $500 to a credit card in case of emergency.

A subprime credit score, defined as a score of 700 or less, means consumers may have trouble being approved for a credit card at all. If they are able to open an account, they will likely have a low credit limit. They will also have a higher interest rate, not only on credit cards, but also on mortgages (if they can get them at all), car loans, and other types of personal loans.

This is even more concerning, since the survey also showed that 64% of people with poor credit aren’t able to borrow $500 from friends or family in the event that an urgent and unexpected expense comes up, either. Research from the Federal Reserve Board in 2016 revealed that 46% of Americans don’t have $400 saved in case of emergency.

The survey, which was conducted by Elevate’s Center for the New Middle Class, included responses from 600 Americans with subprime credit scores. Interviews were conducted in December 2015 and January 2016.

Other findings included:

• 71% of subprime borrowers could not borrow $2,000 from family or friends even if they urgently needed the money
• 80% of respondents could not charge $2,000 to a credit card in case of emergency
• 59% of those with limited credit usually carry a balance on their credit card
• 7% use overdraft protection to cover expenses they cannot afford
• Only one in five have borrowed money from friends or family in the last year

One way people with bad, or subprime, credit can get a credit card is to apply for a secured card. With this type of card, customers put down a deposit to act as collateral in case they default on their balance due. The amount of the deposit, which could be $500 or $5,000, then becomes the credit limit on their secured card.

A secured card allows cardholders to establish or rebuild a damaged credit score, because activity is reported to a major credit bureau, which then factors into the account holder’s credit score.

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