The latest Consumer Credit Report by NerdWallet indicates that nearly 50 million Americans are categorized as “deep subprime consumers”. The figure includes more than 30 million millennials. Just like people with excellent credit scores and histories, they are in need of short-term financing. And credit cards are their go-to source.
Most Americans who are paying off a mortgage have limited funds due to a number of reasons – unstable employment, poor debt management, lack of assets. This situation makes it difficult to deal with routine expenses like bills and groceries. To avoid having to pay for all these out-of-pocket, they resort to other short-term financing options.
Credit cards have proved to be the most widely used option due to their accessibility and versatility. They can be used to make a variety of purchases, even consolidate debt.
Issuers are reaping profit
Despite the greater risk that subprime borrowers represent, credit card issuers aren’t shying away from this particular market. All credit card holders are charged with annual fees. However, only those with balances pay interest. According to the Consumer Financial Protection Bureau, these account for 80 percent of card issuers’ total revenue.
A increasing trend in credit card balances was also observed among subprime borrowers. Study made by credit-scoring company TransUnion found that credit card balances had increased from $4,891 last year to $5,063. Consequently, card issuers have also increased credit availability to those with lower credit scores.
More cards, limited credit
More cards might be issued, but that doesn’t mean issuers have become lenient with credit limits. The median limit for less-creditworthy borrowers was $1,000. Meanwhile, the average credit limit of $8,000. An excerpt from a relevant Business Insider article reads:
“Although new cards are disproportionately issued to lower credit score borrowers, the overall extension of new credit, measured by increases in aggregate credit limits, continues to go overwhelmingly to those with credit scores above 720,” the researchers wrote.
A reputable lender can shed more light on the benefits of credit cards and other funding options.