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."

Jennifer Brown

Jennifer Brown, an external business consultant working with a Fortune 500 company, has years of experience to her credit. Despite having a busy schedule through the day, she takes time out to write articles dealing with credit cards, payday loans and other financial aspects. She has completed her Bachelor degree in Financial Services from Columbia University and has been actively involved in various activities for the betterment of society.