More credit cards have been issued this year than last, and many of them are going to people with less-than-perfect credit. Research from TransUnion, one of the three major credit bureaus, shows that the number of new credit card accounts opened this year is more than 20 percent higher than the same time period last year. TransUnion studied a random sample of 27 million credit reports for their study, showing that new credit accounts abound.
Subprime borrowers, those whose credit is less than 600, represent a large number of these new accounts, as banks relax stringent lending policies and allow customers with a few ghosts in their credit closets to open new lines of revolving credit. Of the 20 percent increase in new accounts, 24.1 percent went to subprime borrowers.
Lenders expect these new accounts to be very active, with Charlie Wise, TransUnion`s research and consulting director, issuing a statement that “We expect these consumers have been making active use of their cards, because in many cases they may not have had access to cards in the past couple of years.”
Risky borrowers getting credit cards is a sign that banks feel optimistic and the economy is continuing to recover, with lenders willing to take greater risks.
At the same time as banks are ready to get risky, more people are paying their bills on time, with payments more than 90 days past due dropping during the first quarter of 2012. The rate of 0.73 percent at least 90 days past due represents a 0.05 percent improvement from the 0.78 percent rate in the fourth quarter of 2011.
When the recession began in late 2007, delinquency rates were up, but since then they have slowly and steadily declined. Going back in time to the years 1999 to 2007, the average delinquency rate was 1.30 percent. During 2009 until 2011, people tightened belts and tried to pay down debt, using less credit.
Now people are spending again, and banks are offering great promotions like zero-percent APR offers on purchases and balance transfers. Chase Slate even offers a zero-percent APR balance transfer with no balance transfer fee, a great way for consumers to pay down old debts and save on interest.
Why Risk it Now?
One reason the banks may be issuing credit to less-than-stellar borrowers is that competition for prime borrowers is tight. People with the very best credit scores, between 900 and 990, aren`t opening new credit accounts as much. Banks are eager for new business and may have to take a chance on someone with a few dings on their credit report.
Fortunately, the data showing that payments are being made on time indicates that the risk is likely to pay off. The average borrower carried $4,962 in debt as of March 2012; a lot to pay down. However, using balance transfers and making payments on time will help anyone pay off debt more quickly and raise their credit score at the same time.
Often when banks offer credit card to subprime borrowers, they give them a lesser credit limit and a higher APR.
However, Credit-Land.com data shows that the APR for new credit card offers has stayed the same over the last month, at 14.91 percent. Rates haven`t remained steady for this long since this time last year. Promotional terms are holding steady along with APRs, making this a bit of a lull in the credit world.
For people carrying a balance and trying to get out of debt, it`s a perfect time to apply for a new credit card and turn over a new leaf.