Credit Industry Courts Subprime Market - Other News

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Credit Card Applications » News » Other » Credit Industry Courts Subprime Market

Credit Industry Courts Subprime Market

Credit Industry Courts Subprime Market

In an effort to expand their business, many banks are reaching out to subprime borrowers after several months of going after only the most creditworthy consumers.

As Michele Raneri, vice president of analytics at major credit bureau Experian, said to marketwatch.com, the banks “want to grow and you can’t grow if you’re only lending to super-prime and prime customers all the time. A normal strategy is to look across the risk spectrum and to lend to as many consumers as you can, and so they’ve started to pull back from this flight-to-quality strategy a little bit.”

Experian defines a subprime borrower as anyone with a credit score of less than 660. Country-wide, banks opened up some 5.4 million new lines of credit for subprime borrowers during the first 6 months of 2011. One of the reasons for their willingness to loosen up their underwriting standards is that a lot of banks have been experiencing a sustained period of  charge-off rates and delinquency rates that are historically low.

“This is truly a reflection of the improvement in the performance of the recent vintages” of card loan originations, said Michael Koukounas, senior vice president of special client services at Equifax, to marketwatc.com. “You’re seeing those vintages performing at a pre-recession level. That has made the issuers of bank cards … more comfortable in how they want to approach the folks that are below 660.”

Many card issuers have strategically increased their mailing out of offers and applications in an effort to drum up new business. According to abcactionnews.com, a Kiplinger report revealed that 1.4 billion credit card solicitations were sent out in the first three months of 2011, 80% of which advertised rewards programs. However, on average, the response rate to credit cards mailings is around 0.5%. That means that the vast majority of mailings do not yield a new cardholder account. Likewise, bank mailings do not always target consumers in a specific FICO score range.

John Ulzheimer, president of consumer education at credit-score website SmartCredit.com, said to marketwath.com that he anticipates that more banks will find ways target consumers in the “meaty part of the FICO distribution” range of 620 to 650.

“There are nuggets of gold in that … score range,” Ulzheimer said, pointing out that a slew of consumers have suffered a decline in their credit score as a result of job loss and other “situations that were completely out of their control.”

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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