Subprime credit cards are back….
The New York Times reported this week that credit card solicitations, particularly for those individuals who have tarnished credit or have previously filed bankruptcy, rose substantially during the fourth quarter of 2011. Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.
The reason for this trend is that it is becoming much easier to re-establish credit after bankruptcy, and the following outlines why:
1 You can now only obtain a discharge in bankruptcy once every eight (8) years
2. Lender’s bottom lines are suffering. They are constantly seeking new sources of business.
3. Most individuals who have filed for bankruptcy, unfortunately, have a craving for credit.
4. We live in a plastic society. Even if you have filed for bankruptcy, you must have at least one credit card, or a line of credit tied to a debit card, for emergencies.
5. Lenders know that if they extended a credit card offer to an individual after filing bankruptcy, and the offer is accepted, they love that individual because the lender knows that they cannot bail out again in bankruptcy for another eight years.
6. Unfortunately, despite everything that has been published on this topic, Lenders have already “built” a contingency into the pricing of credit cards. Lenders are not fools. They know that from day one, if they lender a dollar ($1.00), they are going to lose a nickel ($.05) – there will always be bankruptcies, slow payers, non-payers and the like. This is one of the reasons that many interest rates hover above 15-18% and higher.
Never say never in this world. Many of my clients say that they will never use credit again. This is an absolute fallacy . One of the goals of filing bankruptcy is to obtain a fresh start and begin to rebuild. Part of the rebuilding process is to re-establish credit. I am not advocating the re-establishment of multiple lines of credit but I do advocate obtaining at least one line of credit – just for emergencies.