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Credit Card Applications » News » Other » Subprime Credit Cardholders

Subprime Credit Cardholders

November 01, 2007 | Updated on November 01, 2007
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The content is accurate at the time of publication and is subject to change.

Credit Cards and Mortgages - What Is Paid off Better?

The subprime lending market patterns are declared by Experian to be undergoing significant changes, shifting from the traditional flow of things. Earlier, customers with poor payment history and shaky financial status continued to apply for credit cards as well as mortgage loans, but when it came to paying off debt, the mortgage was the first thing to do away with.

Nowadays, there is a new tendency which stirs some uneasiness among home loan lenders. A recent Experian study revealed that bad credit history customers tend to be late on mortgage payments rather than on their credit card.

Certainly, there are reasons for the shift from the conventional behavior and the major one is claimed to be the change in the customer's management of personal finances.

The issuance of credit cards is ever growing and the subprime segment of credit consumers is not left without its share. Customers with bad payment history found an appropriate use for their credit cards. On the one hand, their plastic helps them to manage their budget and, on the other, improves or rebuilds their damaged credit rating.

So, taking their mortgage payments as their first-priority obligation, customers used to pay their credit card monthly bills second turn, with what was left off their tight budget. Sometimes irregular and almost always only minimum payments kept a person's credit score low and gave no hope of regaining the financial wealth.

But with the help of credit card companies promising a quick credit recovery and offering special credit card applications for that, subprime consumers rushed to improve their ratings aiming at paying their credit card debt before the mortgage debt.

The credit card priority has lead to the untypical situation in which the mortgage delinquency rates have increased by more than 13% with only about 6% rise of credit card delinquent payments.

Interesting to note is that the principle violators of the traditional debt repayment way are subprime consumers. Statistics shows that the outstanding mortgage balances, carried by subprime credit consumers, rise on average by 5% more than the total mortgage debt.

While the number of bad credit card applications thrown out on the market is not likely to subside, mortgage lending to subprime customers is also on the rise.

The subprime lending segment will always remain active as long as credit card companies keep it up by their special offers to bad credit consumers. Lenders know it perfectly well how to keep you paying and so make revenues. They know that credit cards have become a real craze in the present day society and they make a stake on them.

However, everything seems to be quite logical if you read further. The Experian study also showed that customers with "prime" credit scores (680 and more) maintain the tradition of paying their mortgage obligations before credit card balances. Why? Because they have cash available or their good credit card limit allows them to pay. Subprime customers do not typically have much cash. What's more, their credit card debt is pressing on them. What would you do under the circumstances?

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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