Credit-Card Lenders Resume Courting Subprime Consumers
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Here's your money briefing for Tuesday, January 11th. I'm J.R. Whelan for The Wall Street Journal. It's a lot easier to get a credit card now than it was two years ago. After tightening their approval standards at the start of the pandemic, banks and credit card lenders are courting borrowers with less than pristine credit into their customer ranks once again.
The unemployment rate is low. The missed payments that banks are seeing on credit cards remain very low, close to record levels of how low they are.
Anna Maria Andriotis covers consumer credit for the WSJ. Coming up, we'll talk with her about what access to credit cards means for subprime consumers and their credit scores, as well as the role that interest rates play in this decision. That's after the break.
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Why did credit-card lenders tighten approval standards at the start of the pandemic?
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At the start of the pandemic, credit card companies tightened their standards, and that made it hard for consumers with less than pristine scores to get a credit card. Ah, but how times have changed. Now these subprime borrowers are being courted to sign up for credit cards once again. WSJ consumer credit reporter Anna Maria Andriotis joins us with more on this. Anna Maria, thanks for being with us.
Great to be speaking with you.
So first of all, Anna Maria, why did the industry tighten their approval standards in 2020 and make it harder for people to get credit?
So banks pulled back on extending credit when the pandemic began. The concerns then had to do with the rising unemployment rate, which had spiked very suddenly, and the concerns that, generally speaking, when unemployment rises, delinquencies follow. And what banks were trying to do was to limit loan losses going forward at that point. And they did a variety of things. They increased their credit score requirements for applicants who were seeking new credit. They also shut down some of their existing customers' credit cards, lowered spending limits for others. They took a variety of actions for both new and existing customers.
Okay. And so when did they start turning this around? When did they start loosening things?
Around the beginning of last year, for some lenders, give or take a couple months earlier or later than that, lenders started talking about how they were unwinding some of the tighter standards that they had put in place during the pandemic in particular for their existing customers. But the credit reporting data in addition to that showed that standards were becoming easier for people trying to get, to become customers, to get new credit from the banks.
So why do lenders see risky or so-called subprime borrowers as attractive customers again?
So we are in an environment where risk generally looks very low right now. The unemployment rate is low. The missed payments that banks are seeing on credit cards remain very low, close to record levels of how low they are. And in general, you have on one side of the equation here, a low risk environment. At the same time, the banks are looking to increase profitability
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