Data from Equifax suggests credit card issuers may be booking more new accounts at last, and potentially more “near prime” accounts.
It’s a reversal from the recession, when banks regularly turned away potential borrowers with lower credit scores. The reason is twofold: Consumers are getting better at paying their debts, and banks are under pressure to grow their accounts.
Relaxed lending standards led to the creation of 13.8 million new retail credit card accounts in the first five months of 2012, according to Equifax, a credit reporting bureau. That’s a 10 percent increase over the same period in 2011.
To some degree, issuers are better able to predict better risks among consumers considered subprime.
These days, lenders are looking beyond your FICO score when trying to decide whether to lend you money. They’re mixing in a variety of alternative data such as utility bills, cellphone records and rental history, says Eric Lindeen, marketing director for Zoot Enterprises, which conducts credit risk management for credit card companies.
“Sub-prime” is a relative term, and different issuers use various credit scores and score cut-offs to define prime and subprime prospects and customers. In times of credit expansion when issuers are willing and able to take on more risk, issuers may adjust their cutoffs to slowly dial-up more risk, typically with more reward in terms of APR and other credit pricing terms. In contrast to times past, issuers are employing more alternative data sources and decisioning tools to identify the least-risk prospects within the broad segment of consumers without prime credit scores.
After a long period of decline since the onset of the recession, the number of general purpose credit and charge accounts on file began to slowly grow in 2012. On the other hand, consumer card outstandings have yet to make a solid return to growth since 2008.