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Credit cards for the subprime

By Janna Herron ·
Wednesday, February 22, 2012
Posted: 5 pm ET

Not-so-good credit? No problem, the banks said last year. Here's a credit card.

All right, maybe it wasn't that easy, but more Americans with spotty credit got a credit card in 2011, according to a report released Wednesday by TransUnion. The credit reporting agency found that 25.2 percent of the cards issued in 2011 went to consumers with lower than prime credit scores. That's up from 21.8 percent in 2010.

Part of the reason banks started courting Americans with not-so-stellar credit is because of the intense competition among lenders to score prime consumers, says Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit.  Consumers' new penchant for reducing their debt also forced banks to find new places to make money.

So what was left was the subprime market.

But even as riskier consumers added more credit cards to their wallets, a funny thing happened. The rate at which consumers were 90 days or more behind on their credit card payments stayed near historic lows. (The lowest rate in TransUnion's survey was reached in the second quarter of last year.)

It's true, there was a small bump-up in the final quarter of last year, but that can be chalked up to seasonality. Overall, the 0.78 percent delinquency rate in the fourth quarter was the best year-end level in 17 years.

TransUnion forecasts that delinquency rates will trend upward slightly in the near term before dropping again at the end of the year.

Here's another factor to keep an eye on: The average credit card debt per borrower rose $442 to $5,204 in the fourth quarter from the previous quarter. That can add up if a cardholder doesn't pay off the entire balance every month and instead opts for the minimum payment.

If you're charging more on your credit card, make sure to set aside enough money in your bank account to cover the entire bill every month.

What's your take: Is it dangerous for banks to start doling out credit cards to consumers with riskier credit? Why or why not?

Follow me on Twitter: @JannaHerron.

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March 18, 2012 at 7:04 am

The best thing to do is just call the company, speak to them pletiloy let them know that you have had impeccable credit and that you've been a good paying customer you want to do what is financially best for you.Tell them that another company has offered you a card with a lower interest rate and you are thinking of transferring your current balance with capital one to the new credit card they may ask for the name just say american express or something tell them they are offering you a rate of (whatever you want the rate lowered to) If they decline that idea tell them you will be closing the account with them because you will have no need for the card once you've transferred the balance then they will more than likely transfer you to retention where they specialize in keeping the customer and the first step is to entice you with a lower interest rate. (they cannot penalize you for lying to them about closing the account or anything so I say it's worth a shot)Good Luck

February 23, 2012 at 8:58 am

The banks have algorithims to help them determine qualifications for issuing cards. They aim to make more than they lose within a range of probabilities. The overall risk is peanuts compared to other things they do. The fact that they ruin financial lives is irrelevant to them. It's all about their bonus checks.