Banks Are Making It Easier to Get Credit Cards

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Lenders left borrowers with less-than-perfect credit at the start of the pandemic. Now they are hugging him.

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Even subprime borrowers, a group that were left out during the pandemic, are finding it easier to get loans.

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According to the latest data from Equifax, lenders issued about 11.6 million general-purpose credit cards to people with credit scores less than 620 during the first nine months of 2021.,

43.5% from a year ago and the highest for the period on record. (Equifax’s data goes back to 2010.) The overall spending limit on the card rose 45% over the same period.

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In the early months of the pandemic, lenders preparing for a tidal wave of missed payments tightened loan-approval standards, pushing risk-averse borrowers out of the market for new loans. But government stimulus and expanded unemployment payments helped lower credit-card balances and keep defaults at bay.

According to a Federal Reserve senior loan officer survey, some 33% of banks reported somewhat lowering their credit standards for card approval during the three months to early October, compared to about 4% a year earlier. .

“The credit market is now reminiscent of 2019 – not the early stages of the pandemic,” said Paul Siegfried, credit-card and payments business leader at TransUnion. “Despite the increase in new accounts for subprime borrowers, we have observed that balances for subprime borrowers remain relatively stable – a sign that consumers are not taking on too much risk.”

The slackness is reflected in credit-card interest rates, which have risen because lenders are issuing more cards to people with lower credit scores, who are charged more for their higher risk of default.

According to the Federal Reserve, the average annual percentage rate, or APR, on interest-charging credit cards climbed from 15.91% in the first quarter to a record high of 17.13% in the third quarter, slipping to 16.44% in November. ,

Credit-card APRs are usually based on the prime rate and margin set by lenders. The prime rate fell to 3.25% in March 2020 and has remained unchanged since then, but margins have increased. Lenders scored an average of 13.19 percentage points on interest-charging credit cards in November, up from 13.03 points a year ago and 12.13 points two years ago, according to an analysis of Fed data by WalletHub.com.

According to the Fed, lenders are embracing borrowers with low credit scores to boost credit-card profitability, which in 2020 fell to its lowest level since 2009.

According to Equifax, credit-card balances are below their pre-pandemic levels as of November, compared to $913 billion in January 2020, totaling $808.6 billion for general purpose and store cards. Smaller balances generally mean lenders collect less interest income.

Issuers say balances have risen in recent months, but many cardholders are still making higher monthly payments than usual. Lending to people with low credit scores in a healthy labor market is one way banks can get high returns without taking on too much risk.

“We are seeing a lot of appetite from issuers to go subprime,” said Odysseus Papadimitriou, chief executive officer of WalletHub.com. “They have gone further down where margins are thicker and interest rates are higher.”

Write Annamaria andriotis [email protected] . Feather

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