Credit Trends: Signs of Life from Subprime Customers
By Janet Dedrick
Are you confused by what you hear on the news or read in the business pages about the country’s economic recovery? My job involves trying to make some sense or draw conclusions from all the varied reports that cross my desk every month. In this blog, I’ve talked about student loans, home equity lines of credit, and auto loans, but I keep coming back to new lines of credit.
I still think watching for signs of life in the credit world will provide clues to the economy’s recovery. The credit card market is starting to open up more, to show signs that it’s moving toward recovery.
What are the green shoots I’m seeing? There is more activity among subprime credit card holders, usually considered those who have a credit score of less than 660:
1. New subprime credit card holders are emerging. July 2010 saw 761,000 subprime card originations. This is 34 percent higher than a year ago, in July 2009, when there were 566,860 subprime card originations. I’m seeing growth in this area, but I can’t call it a full rebound. Subprime originations were as high as 2.5 million in July 2007.
2. Card-issuing standards are relaxing. Risk-score underwriting in the subprime credit card market is showing signs of growth. I’ve seen indications of new card underwriting relaxing in both general purpose credit cards and retail store cards:
General purpose credit cards: Subprime card holders make up 26 percent of the consumer population, compared to 22 percent one year ago.
Retail store cards: Subprime card holders make up 26 percent of the consumer population, compared to 24 percent one year ago.
3. Total new general purpose credit cards grew 12.8 percent in July 2010, year over year. If this rate of growth continues for the rest of the year, new general purpose credit cards in 2010 are estimated to reach 34.6 million, compared to 32 million new cards in 2009.
While these raw numbers and projections are helpful, the credit trends don’t give me all the data about consumers I want to see. I can’t see what’s happening with debit cards or with prepaid cards, which are a large source of activity for underbanked, lower-income consumers. That said, I think that subprime consumers are probably finding it easier to get new credit cards than it was a year ago. However, a large segment of the population is still looking for the road to recovery, and they’re probably using alternative methods of payment, such as prepaid cards.
I will keep watching for signs of life in the credit industry and keep you updated. Please share your experiences or thoughts on the economy in the comments.
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