Credit Issuers Court Subprime Borrowers

Thursday, March 17th, 2016

Ever since the economic crash of 2008, banks have tightened their lending standards, leading to less available credit for Americans. But now, with the uptick of the economy, more and more people who could not be approved for loans and credit cards are finding themselves able to secure the lines of credit they need.

More favorable interest rates and more available credit is good news for people with no or limited credit. These are folks the banks call “subprime” borrowers—those with credit scores in the 600 and less range. This can be because of defaulting on a loan, carrying too heavy of a debt load, or even because they’ve never had a credit card and didn’t establish any credit history.

Subprime sees its prime time

These subprime borrowers are now awash in offers for credit cards, say financial news experts. Consumers who may not have been able to get a credit card five years ago now have their pick of cards. One caveat, however: the cards may not come with as favorable of terms as cards for people with good or excellent credit.

Credit card experts say that the most common thing for people to watch for in a credit card for no or limited credit is a high interest rate. If you’re getting a card meant for people with poor credit, it’s likely to have a low limit and a steep annual percentage rate. However, that isn’t necessarily a bad thing.

Paying on time avoids interest

The key to avoiding those high interest rates is to pay the full amount due each month by the due date. This way, you won’t be charged interest, say financial advisors. So a high interest rate doesn’t necessarily cost you money in the long run.

One thing to be aware of is the fee schedule of a credit card. Although banks are now offering lines of credit to people with low credit scores, they might charge higher penalty fees, annual fees, and other fees for having and using the card. It’s important to be aware of what those fees are, and how to avoid them.

Building credit through using credit

One good thing about the more widespread availability of credit, financial advisors say, is that folks with poor credit will have the chance to improve their credit scores through responsible use. Without having a credit card, it’s hard to raise your credit score. So the improved economy may lead to improved credit scores for many consumers, as well.

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