Banks Loosening Credit for Subprime Consumers
Good news for those with less-than-perfect credit scores: banks are finally opening the lending doors for subprime consumers.
But banks don’t seem to be blindly plunging into lending to the consumers who can’t afford the debt they are taking on. Lenders are making smarter decisions: they strict criteria in opening credit to these consumers.
Usually banks price bad and mediocre accounts much higher than those with perfect score. That’s also tied to the credit card legislation that prohibits card issuers from raising rates for the first year in which the account was open.
High-risk consumers, or those whose credit scores are below 600, are still a huge cause for risk concern. Typically, people with poor credit scores fall into two categories. The first is for those who destroyed their scores themselves by missing payments, exceeding limits, filing for bankruptcy and any other financial disorder. The second is for limited credit histories, such as students and new immigrants.
When the recession hit and jobs were axed, hundreds of people who once had great, even acceptable personal financial management skills saw their scores swoop as money misery piled up.
Today the credit score between 620 and 659 is generally considered as an ‘average’ credit score when in previous years it would have been considered as a ‘poor’. The credit-card issuance to such consumers jumped 21% in the first quarter compared with the same period a year ago and the amount of credit extended for consumers in that credit score range is on the rise as well (according to Experian).
It seems that banks understand that many Americans suffered for years from high unemployment and depressing economic outlook. For example, as banks look to new sources of revenues, they are more understanding of consumers who lost jobs and ruined their credit scores in the process but are working to improve them.
Now, as banks are more financially stable, they coupled with the Federal Reserve’s promise that interest rates won’t inch up before 2014. Also the default rates have dropped considerably for those in the 700-range.
Competing for market share the lenders prompted to relax some underwriting criteria and now those people who were trapped between prime and subprime are the ones who are seeing the benefits of loosening credit.
Latest No / Limited Credit Card News
The wedding season is coming up—meaning brides and grooms-to-be are busy tasting wedding cakes, refining guest lists, and booking photographers. But there’s something else they should add to their to-do list, financial advisors warn.
They say knowledge is power. And in the case of credit scores, it seems to be true.
A recent survey by the Consumer Federation of America (CFA) and VantageScore Solutions, LLC, found that people who had recently gained access to their credit score knew more about how credit scores are calculated than those who are unaware of their scores.
New reward options for Chase card users may get them to download and use a mobile wallet app, even if they’ve been reluctant to do so before. Chase Freedom is offering 5% cash back on up to $1500 in purchases over the first quarter of 2018, when they make purchases with Chase Pay, Apple Pay, Android Pay, or Samsung Pay.
When you’re in the market for a new credit card, nabbing one with the lowest APR possible is of primary importance. So customers of Navy Federal Credit Union will be glad to hear that the APR for its Platinum and GO REWARDS credit cards have been lowered, to 6.74% and 9.74%, respectively. The change took effect June 30 and will be the ongoing rate for an unlimited period of time.
Green Dot Corporation has acquired the popular prepaid card co-founded by Russell Simmons, RushCard, for $147 million.