A recent statistic shows that subprime credit status is not stopping lenders from pursuing new accounts with potential clients.
In fact, an alarming number of less-than-favorable credit-holders are receiving offers in the mail.
As a matter of fact, very recent studies show that the number of new lines of credit extended to consumers with subprime credit score is on the noticeable rise.
Over the past year, or perhaps the past two years, statistics gathered by the credit monitoring bureau Equifax show evidence that lending to the subprime community of consumers has grown by more than 40 percent through last year. This is according to a MarketWatch report that tracked new account offers, culminating in the highest new account offers in December in the last four years.
This increasing trend continued through the first of the quarter of the New Year as subprime accounts rose 21 percent by the end of that year (2011). The report shows that this was the highest annual increase since 2008, with each value offering an average of $1,500, a statistic that is also higher than it has been in the past.
Of course, it is necessary to note that this increase may be due to the fact that consumers are quickly becoming more conscientious about paying down their outstanding balances. The report states that account delinquency and default rates are near the lowest they have ever been, especially in regards to credit cards.
Overall, then, this has resulted in consumer debt falling nearly 12 percent since 2008, again, the highest it has ever been. This result has reduced personal consumer debt by more than 7 percent.
With that in mind, then, it should not surprise you that the issuing of new credit card accounts to subprime customers makes up nearly 25 percent of all new accounts. This statistic is up about 22 percent from the same information from the year before, according to the report. Within these facts it should be noted that lenders have noticed that the default risk on a new consumer credit card account has only slipped to 3 percent, up from just 7 percent in 2009.
This, of course, looks very good to the credit bureaus and makes consumer that much more appealing. With the current rate at triple that of 2005 (which was, if you have done the math, sitting pretty at 1 percent), though, it is clear that this is still not the best credit conditions that the United States have ever seen.
As the United States works to get out of this recession it is interesting to see how the credit industry changes and adapts. Experts, of course, are predicting that default and delinquency rates will increase sometime in the next year.
This is partially due to the fact that the aforementioned low rates are not likely to be sustainable statistics so, first of all, it is quite obvious that rates will increase. Secondly, though, economists always attest that the economy is cyclic; which means that statistics are always set to change.
Finally, the new credit card reform has forced credit card issuers, financial institutions, and consumers alike to reexamine how they use and manage credit. Obviously, this is not necessarily something that is sustainable either; as the economy improves and job growth continues, the needs and regulations regarding credit will also change.
Lenders are increasing their marketing efforts – and that right there tends to drive increased interest in credit among consumers. You think about what’s in front of you.
Ezra Becker, vice president of research and consulting for TransUnion, one of the three major credit bureaus.
