Here is the good news for many consumers looking for more room on their credit cards: Big banks are raising borrowing limits for substantially more of their card holders.
The bad news: Subprime borrowers likely to fall deeper into debt and default on their cards are also being granted higher limits.
Facing weakened profits from tighter regulations and low interest rates, banks are unwinding lending standards that were tightened in the wake of the financial crisis, just as the jobs market is in better standing and consumers have shed much of the credit card debt of the last five to seven years, industry analysts told the Los Angele Times.
Consumer advocates are concerned that banks’ pursuit of profits could result in too much debt for struggling Americans.
Credit card providers approved 61 percent of the requests from cardholders for higher borrowing limits in an October survey by the Federal Reserve Bank of New York. Just four months later, that approval rate soared to 76 percent in February’s national survey.
“Credit card issuers are feeling a lot better about the economy and their position,” Bill Hardekopf, chief executive of LowCards.com, a credit card comparison website, told the L.A. Times. “They want to generate some new business.”
‘Middle-Tier’ Credit Scores
The biggest jump in approvals for higher limits was for so-called middle-tier cardholders with credit scores of 681 to 759 — the average U.S. credit score is about 690. These customers, many of which are considered prime-quality borrowers, were granted increases about 90 percent of the time, compared with 70 percent in October.
So-called subprime customers, those with credit scores of 680 or less, got their limits raised nearly half the time in February. In the October survey, their requests were granted only about a third of the time.
Normally, subprime cardholders are hit with much higher interest rates and fees, which generate higher profits for lenders. A separate survey last week by a bankers’ trade group found that subprime borrowers already are opening more accounts and taking on more debt.
Read the L.A. Times article.