To the dismay of some, credit card companies are once again loosening their criteria for creditworthiness and are targeting those who have had credit problems in the past. In fact, in the first six months of 2011, banks across the nation issued 5.4 million new credit cards to those whose credit histories have taken a hit to the point of their being classified as subprime. Not only that, but this trend is expected to continue. So why are so many disgruntled with this news? After all, it’s these very markets that make the American economy go round, yes?
The reasons, or rather, the big reason, many banks are feeling a bit more generous in their approvals has much to do with the historically low charge off and delinquency rates. Even that isn’t necessarily a true reflection, however. Those delinquency rates don’t include consumers who have found themselves with the unenviable prospect of bankruptcy being their only option. Those bankruptcies aren’t factored into the credit companies dynamics. Once an account has been written off or has found its way into a bankruptcy proceeding, it no longer plays a role in the semantics of reports that go to shareholders and more importantly, the media – at least not in the context of reporting late payments.
Another reason has to do with keeping the competition at bay. The last thing a company wants to realize a year from now is that their competitors have successfully played a role in the American consumer who was dealt a few hard blows due to the economy. It could be those same borrowers did fine prior to the mortgage meltdown, catastrophic recession and still-present low job market numbers. Once the playing field leveled a bit for many of these families, they were ready to pick up the pieces. These are the ones smart credit card companies are luring. One step at a time, even though the 27% increase in subprime credit card offers feels anything like a baby step.
Words for the Wise
Are you ready to jumpstart your credit history again? While it’s no walk in the park, there are a few things you can do to protect yourself, especially if what some forecasters say will happen. Those three words are still wreaking havoc: double dip recession and the last thing you want to do is find yourself starting over yet one more time a year from now.
The first bit of advice you’ll get, no matter who you ask, will be to keep your balances low and pay them off each month. If that’s no possible, ideally, you’ll be able to pay significantly more than just the minimum due. That’s one sure fire way to find yourself in a less than ideal credit crunch.
Do your research before applying. If a credit card offer requires “excellent” credit and you know you’ve had a few late payments in recent years, you’re only going to cause your credit scores to take a hit, albeit temporarily. Secured credit cards remain a strong option and one you shouldn’t count out, especially if you’ve had a bankruptcy, job loss or foreclosure. It’s a great way to get the proverbial wheels rolling again.
Expect any approvals for a credit card to come with lower limits than you might be accustomed to. It’s a slow dance and one you’re not in the position to lead. Build from that foundation. You’ll be receiving credit card offers on a daily basis soon enough.
Shop for those offers with low APRs, even if they’re an intro APR, low or no annual fee and while the perks or rewards units might not be your first priority, be sure you’re not choosing a rewards card with units you won’t use. Some folks have no need for airline miles and if you’re one of them, a rewards card that offers these as its reward units won’t be used to its full potential.
Finally, be sure to read the fine print, avoid the temptation to rebuild too quickly with several credit cards (which will likely hurt you instead of assist you in any ill-advised efforts to build your credit rating overnight) pay attention to any disclosures that come in the future (the laws have changed and the more you know, the better prepared you are) and don’t forget to check out the various fees. Along with an annual fee, you may discover other hidden fees you hadn’t counted on having to pay.