A report from TransUnion shows that credit card companies just issued around one in four new credit card accounts to “consumers with a score below 700“. This seems to run counter to a trend where lenders look for more security from potential borrowers.
So what gives?
Profitability, for one. Individuals with lower credit scores are charged higher interest rates for debt, so the credit card companies may be looking to boost their profits by targeting consumers at the lower end of credit score scale. And besides, the competition for high-score consumers is already very stiff and cut-throat. So why not go for the demographic that others are more reluctant to work with?
This presents a dilemma. On one hand, you have the risk of low-score consumers getting in over their heads with debt. Carrying debt over to a monthly balance can add up to expenses pretty fast. On the other hand, these same consumers are given the opportunity for additional financing despite their low scores. They can get a tool that will allow them to better manage their expenses and get a few rewards while they’re at it.
So it all boils down to personal responsibility. Let’s just hope this move is not reminiscent of the epic disaster that was the subprime mortgaging market of ‘06.