Subprime Borrowers Get More Access to Credit

During and even in the wake of the recent economic downturn, many consumers fell behind on their various credit payments and banks responded by severely tightening lending restrictions.

However, as the effects of the recession continue to fade for some consumers and the broader economy as a whole, lenders are now allowing subprime borrowers whose credit scores may have suffered severely during the downturn, to have greater access to lines of credit once again, according to a report from the credit monitoring bureau Equifax. And while credit issuing remains depressed below pre-recession levels at just $782 billion in 2011, that amount was a significant gain of 10 per cent over both 2009 and 2010.

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Evidence suggests that much of this change was driven by lenders stepping up their efforts to extend credit specifically to borrowers whose credit ratings have taken a hit in the last few years and still not recovered, the report said. Bank credit card lending to subprime borrowers increased 41 per cent between the ends of 2010 and 2011, as new accounts hit a four-year high at 1.1 million. Further, credit limits on those cards grew to $12.5 billion, up 55 per cent from 2010, to the highest level since 2008.

“The evidence of increased lending to sub-prime consumers demonstrates banks’ ongoing efforts to grow lending by providing credit opportunities to more consumers,” said Amy Crews Cutts, chief economist at Equifax. “Year-over-year results show borrowers are taking advantage of the new opportunities and seeking to diversify their financial activity, which is building momentum toward economic improvement.”

Similarly, subprime lending on retailer-issued credit cards also grew, though less significantly, because in many cases, the qualifications for that type of account are far less stringent, the report said. In all, subprime lending on retail cards grew 4.7 per cent between 2010 and 2011, and made up 31 per cent of all originations for these accounts last year.

In addition, car loans extended to subprime borrowers surged last year, and these borrowers now make up 46 per cent of the total auto finance market, the report said.

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Consumers who suffered financially during the recession and saw their credit ratings take a hit as a result may want to check their credit report to see how much work they have to do to get back to their pre-recession ratings.

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