Credit Card Issuers Targeting Sub-Prime Customers
Credit card issuers are once again aggressively pursuing sub-prime customers.
A March report from Equifax, the National Consumer Credit Trends Report, shows that lending to sub-prime borrowers rose 41 percent in 2011 compared to year ago levels. In addition, 1.1 million new bank cards were issued last year to sub-prime borrowers, a four-year high.
The growth in the sub-prime category was much greater than the overall bank credit card growth of 18 percent in 2011. This overall growth included 39.9 million new bankcards, the highest total since 2008.
New sub-prime card limits grew 55 percent for the period to $12.5 billion, the highest level since $27.4 billion in 2008.
After the crash in 2008, banks slammed on the lending brakes and only people with excellent credit scores could get new credit. This growth in borrowing and lending at all levels could be a good sign for the economic recovery. A significant number of borrowers have paid down their balances and reduced credit card debt to become a better risk for lenders. Regulations have also hammered the issuers’ ability to generate revenue, and the banks are trying to find new ways to grow. These loans to sub-prime cardholders have higher rates and fees, so they offer revenue growth opportunities for the issuers.
According to Equifax, a credit score of less than 660 is considered sub-prime. When someone with a sub-prime score is approved for a credit card, the loan usually has a much higher interest rate and greater fees.
In order to build your credit score, it is important for a sub-prime customer to choose a card that reports your payment history to the credit bureaus–this can eventually raise your credit score if the card is used responsibly and payments are made on time.
Here are some of the better cards for sub-prime customers:
* Orchard Bank Secured Visa reports to all three credit bureaus. The minimum security deposit is $200. The rate for purchases is 7.99%, and the $35 annual fee is waived the first year.
* Capital One Secured MasterCard reports to the three major credit bureaus. You can even earn credit line increases based on your payment and credit history. This card requires a $200 minimum security deposit and your credit line will be equal to your security deposit. The interest rate is 22.99%, and the annual fee is $29.
* American Express Prepaid card does not charge recurring fees. There is no annual fee, monthly fee or transaction fee. There is a $2 fee (plus ATM owner fee) for each ATM withdrawal. American Express, known for targeting high-income cardholders, aggressively entered the prepaid card market in 2011 and recently announced that it will give prepaid debit cardholders the opportunity to upgrade to a traditional charge card if they exhibit good payment practices as they use their card. This can help consumers buildup their credit score.