Consumer with less-than-perfect credit scores are opening more new credit card accounts than any other demographic, according to Equifax’s latest National Consumer Trends Report.
People whose credit scores are 660 or lower on the Equifax Risk Scale are considered subprime borrowers, indicating that they have some bumps in their credit history and might represent a higher lending risk for banks and other credit issuers.
In July, year-over-year growth for bank-issued credit cards was at a six-year high among subprime borrowers, jumping by 42.9% from $6.88 million to $9.84 million. Limits on bank-issued credit cards also rose to their highest point in six years, growing 43.5% from $8.83 billion to $12.68 billion.
Retail store credit cards saw their highest growth among subprime borrowers as well, rising to eight-year highs in both new credit cards and credit limit increases. Retail credit card limits grew year-over-year by 16.2%, from $5.91 million to $6.87 million, and new credit cards increased 12.8% from $6.9 million to $7.8 million.
Subprime credit growth indicates strengthening economy
New credit issued to people with lower credit scores is an indicator of an economy in recovery, as companies are more willing to extend credit and consumers are ready to rebuild their credit. Although they may be opening credit accounts, these consumers seem to be paying off their balances or keeping them low for the most part. Amy Crews Cutts, senior Vice President and Chief Economist at Equifax, explained that while consumers are taking on more credit and lenders are willing to offer it, “balances for both subprime and prime have risen very little, suggesting that while consumers are positioning themselves for growth – they are also hesitant to take on new debt.”
Other data from the Equifax trend report included:
- The debt write-off rate as of September 2014 declined 15.9% compared with September 2013 and was at 3.48% for bank issued credit cards.
- Credit utilization has been below 22% since the beginning of 2014, also for bank-issued cards.
- Available credit on bank-issued credit cards is higher than $2 trillion for the first time since March 2009.
- Retail credit card balances have increased 6.7% over the last year, with a total outstanding balance of $59.6 billion.
- 21.7 million new retail cards had been issued as of July 2014.
- The total number of retail card issued loans with outstanding balances in September 2014 was at its highest level since January 2009, at over 195 million.
Equifax is one of the three major consumer credit bureaus in the United States, and tracks data from over 600 million consumers nationwide.