Banks have been slow to make credit cards available again to subprime borrowers. Unlike, say, auto lending, where underwriting standards have relaxed noticeably, banks haven’t loosened up much on credit cards since the financial crisis. That’s starting to change, although only for borrowers with FICOs in the 620-700 range, not exactly deep subprime. As Nora Colomer explains in our cover story, banks are finding that offering cards to borrowers with less-than-pristine credit is one of the few ways to grow receivables. That’s because the strongest borrowers continue to pay down their debt, and when they take out new accounts, to use them like debit cards, paying off the balance each month. Weaker borrowers aren’t running up big balances either, but they’re an underserved market.
The new subprime credit card accounts are unlikely to show up in securitization trusts any time soon, since banks are still relying heavily on deposit funding instead. But it’s something that bears watching: if these borrowers come under financial stress, they could always draw down on the unused portion of their credit lines.