More consumers may be approved for new credit cards in 2011
After a three-year slowdown, banks and lenders have begun to issue credit card offers to the many Americans whose credit scores were hurt by the recent financial crisis.
This includes extending lines of credit to many individuals who may have experienced charge offs, foreclosures, unemployment and other economic ailments as recently as half a year ago.
However, many of these consumers will likely wish to compare credit card offers before making decisions, as the new cards are coming equipped with higher interest rates and annual fees, The New York Times reports.
One of the ways lenders are looking to extend new credit lines to customers is by foregoing the long-held practice of using consumer credit scores in order to assess risk. Instead, many companies are looking at behavioral tendencies for this, which may include such criteria as whether a consumer is registered on a job website, such as Monster.com or Jobs.com, the news source says.
Despite the slackening of their qualifications, many credit card issuers are not simply preapproving consumers. Instead, they are using new distinctions to better classify different individuals with similar credit scores.
This includes extending credit to "strategic defaulters," or those whose credit score was damaged when they purposefully went into foreclosure. These borrowers may have made bad fiscal decisions, but may be less risky than other consumers, the Times reports.
Another new classification is "first-time defaulters," or those who have a strong credit history, but recently experienced difficulties relating to the recession, such as a missed payment after a job loss.
Among the additional terms are "sloppy payers," consumers who only pay some bills; "abusers," who frequently make late payments; and "distressed borrowers," who may not have the means to make payments on new credit cards.
"Lenders want to prove to themselves that it is worth taking a higher risk," Brad Jolson, an executive of credit score company FICO, told the news provider.
In recent years, lenders have seen revenues decline by more than $189 billion, and had previously tried restricting credit to affluent customers. At the same time, millions more Americans may have been shut out of the system due to delinquencies and charge offs.
Consumers who are now receiving offers from issuers may wish to compare credit cards, because many will likely have varying interest rates. By choosing the one with the best rate, consumers could save more money and ensure that they are able to repair their credit.