WASHINGTON—A new report provides more proof that lenders are reaching down deeper into credit scores.
CardHub’s 2014 Credit Card Landscape Report shows that card issuers in Q4 2014 dropped their interest rates from the previous quarter by 5.25% for fair credit, or subprime, borrowers. In the last year, issuers have reduced their interest rates for subprime borrowers by 12.13%, according to the report.
CardHub spokesperson Jill Gonzalez says the finding indicates growing confidence among lenders in extending more credit to weaker credit scores, due largely to the fact credit card default rates have dipped to their lowest point in 30 years.
CardHub expects increased competition in the subprime space as the economy continues to improve and issuers look for additional sources of revenue. “The credit card space is going to heat up in 2015,” Gonzalez told CUToday.info.
What is likely driving lower delinquencies—and the lower interest rates—are subprime borrowers working to boost their credit, offered Gonzalez. “I think these consumers with fair credit are really trying to build their scores to good and excellent, because they see all of these lucrative rewards programs issuers are promoting now.”
Other report findings:
- According to CardHub’s latest projections, consumers incurred an additional $60 billion in credit card debt in 2014. In response, issuers are making 0% APRs on balance transfers the most enticing they have been in more than six years, CardHub reported. However, they are compensating for the longer 0% intro periods by raising the rate for the regular APR by nearly 6% since 2013.
- The initial bonuses for both cash-back and miles-rewards credit cards see a vast improvement in 2014 from the previous year, rising 14.26% and 10.00% respectively.
- Cash advance fees have been growing consistently, caused by a lack of consumer concern with the cash advance fee until it’s too late, said CardHub. Fees rose an average of 2.11% from Q3 2014 and nearly 17% from 2013. “But if issuers continue to take advantage of this behavior, it will only be a matter of time before consumers catch on to the fact that drawing cash advances against their credit cards will yield unmanageable costs,” the company stated. “When that happens, issuers just might see their cash-advance revenues dry up.”
Related
CardHub: Consumers Racking Up Card Debt, Defaults On Horizon