Credit-Card Lenders Pursue Riskier Borrowers

June 27, 2014
Wall Street Journal 
credit card news
More than ever since the financial crisis, lenders are wooing riskier credit card borrowers in hopes of boosting revenue amid slow growth and more regulation. Lenders issued 3.7 million cards to subprime borrowers in the first quarter -- a 39 percent increase from a year earlier and the highest level since 2008, according to data provided by Equifax Inc.

Other sources of revenue are drying up, making subprime borrowers more attractive to banks because they usually pay higher interest rates and generate more revenue as long as they keep making their minimum payments. The average rate for subprime customers was 21.1 percent in the first quarter, up from 20.2 percent a year earlier, reported. The highest-quality borrowers paid 12.9 percent on average in the first quarter, about the same as a year earlier.

New regulations make it more difficult for credit card issuers to pursue more lucrative practices, such as raising interest rates on existing balances. Bank executives say they hope to reach out to consumers who were struggling financially but who are now in a more stable position. Subprime borrowers are typically defined as those with FICO or Equifax Risk credit scores below 660. These borrowers often have records of missed debt payments, foreclosures, bankruptcy protection, or no credit history.

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