Banks are More Lenient Towards Near-Prime Lenders
Today lenders are increasingly offering credit to “near-prime” consumers as they look for ways to increase their bottom line.
It’s a reversal from what it used to be. Banks used to turn away potential borrowers with lower credit scores. The reason of this change is twofold: consumers are getting better at paying their debts, and banks are under pressure to grow their accounts.
Banks broaden the niche of customers they can extend a credit because those who have credit are only a small part of the population. They start extending credits to near-prime borrowers with FICO scores of 660 and below.
There is a tendency amid banks to bunch consumers according to the likelihood they’ll pay back their debts. Consumers with the highest credit scores are considered “prime”. If a borrower has a slightly lower FICO score, somewhere in the 600s, they’re considered “near prime”. Below is a lower tier of higher-risk “subprime” consumers.
Nowadays, lenders tend to look beyond your FICO score when they are trying to decide whether to lend you money. They check some alternative data such as utility bills, cellphone records and rental history.
There are issuers who also pay less attention to some of the older missteps in your past. Instead of looking at three to seven years’ worth of credit history, many focus on shorter time frames of between one and three years, paying closer attention to the most recent year.
The good news is there are a lot of issuers today who are looking for imperfect consumers and give them an opportunity to get back into credit.
Even though the issuers are lending to near-prime borrowers with delinquencies and charge-offs are approaching “historic” lows, they are still very cautious. They still often direct their riskier customers to specialized cards (e.g., secured credit cards) that will help them rebuild their credit records.