Subprime Borrowers Find More Access to Credit
Apr 11th, 2012 @ 12:54 PM by Amber Nelson
Consumers with less than stellar credit are now having an easier time acquiring things like credit cards and auto loans, according to a new report from credit reporting agency Equifax, as lenders turn up their credit spigots in hopes of increasing market share.
The report found that banks increased their credit card lending to subprime borrowers by 41 percent between 2010 and 2011, reaching 1.1 million new card issued, a four-year high. Bank-issued credit card limits also climbed 55 percent to $12.5 billion in 2011, the highest level since 2008.
There was also a significant increase in retail credit card issuance to poor credit consumers between 2010 and 2011, a 4.7 percent increase. That pushed credit card originations to subprime borrowers to 31 percent of all new cards issued.
And auto loans were also more readily available to those without great credit. Between 2010 and 2011, car loans to subprime borrowers rose $11.6 billion to $176.2 billion, the highest total since before the financial crash.
“The evidence of increased lending to sub-prime consumers demonstrates banks’ ongoing efforts to grow lending by providing credit opportunities to more consumers,” said Equifax Chief Economist Amy Crews Cutts as quoted in a Forbes article . “Year-over-year results show borrowers are taking advantage of the new opportunities and seeking to diversify their financial activity, which is building momentum toward economic improvement.”
One reason that banks are opening up more credit to subprime borrowers may be that they are looking to recoup losses from newly-imposed regulations. The CARD Act has put all sorts of new restrictions on fees banks can charge and reaching out to this underutilized segment of borrowers may be a way of making up for revenue declines.
And auto lenders have seen major declines in loan delinquencies over the past few years, making them much more willing to expend their lending net. Hopefully the total effect of this trend will be sustainable economic growth, with banks and lenders using more careful qualifying processes than during the pre-recession period.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.