Subprime Credit Isn't Stopping Lenders

In the past several months, many Americans who have had significant problems with their credit cards and other loans in the past have been receiving a greater number of offers for new accounts.

The extension of new lines of credit to consumers with subprime credit scores has been increasing significantly in the past year or so, and new data from credit monitoring bureau Equifax suggests that lending to these consumers rose 41 percent in 2011, according to a report from MarketWatch. December of last year saw this type of lending increase to a high not seen in four years.

That trend continued into the first quarter of this year, when the issuing of new accounts to subprime borrowers rose 21 percent on a year-over-year basis. That was the highest annual increase since 2008, the report said. Further, the value of these offers is increasing as well, as subprime accounts now have upward credit limits averaging $1,500.

These changes have come largely because of how conscientious consumers have been in attempting to pay down their outstanding balances, the report said. Now, instances of both delinquency and default are at or near all-time lows, especially on credit cards, and consumer debt has fallen 11.5 percent since its 2008 peak. Consumers have cut about 7.3 percent of their personal debt, on average.

Now, the issuance of new credit cards to subprime consumers makes up roughly 24 percent of all account originations, the same figure observed throughout 2011 – up from 22 percent in 2010, the report said. That’s largely because lenders have seen the risk a consumer will default on a new account slip to just 3 percent from 2009’s rate of 7 percent. However, the current rate is still triple the 1 percent risk of default in 2005, prior to the onset of the recession.

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“Lenders are increasing their marketing efforts – and that right there tends to drive increased interest in credit among consumers,” Ezra Becker, vice president of research and consulting at credit bureau TransUnion, told the site. “You think about what’s in front of you.”

However, experts note that consumers will likely see default and delinquency rates increase at some point in the near future because the current all-time lows observed in both instances are considered unsustainable.

Image: seishin17, via Flickr