Credit cards for fair credit and poor credit have returned in force after a few years on the market's back burners, according to analysts at TransUnion. As a result, the credit reporting agency's leading risk indicator has returned to a level last seen at the start of the country's financial crisis.
TU's Credit Risk Index notched a 2.3 percent increase in the fourth quarter of 2011, compared to the previous quarter. This marks the index's first gain since the beginning of 2010, stemming seven straight quarters of reduced risk for credit card lenders.
Seasonal credit offers also increased risk
In a statement to reporters, TransUnion spokesman Charlie Wise explained that a strong holiday shopping season required retailers and lenders to loosen their credit guidelines. After wrestling with potential new privacy restrictions on collecting credit card applications at checkout, retailers got back in the game. Factoring holiday shopping out of TU's calculations results in a "decrease in overall risk."
Retail credit cards limit risk, since they limit cardholders' purchasing activity to a single location. Most store credit cards offer very small lines of credit, especially to applicants with fair or poor credit. Retailers can cut their losses quickly by writing down the value of goods sold and assigning accounts to collections soon after default.
Banks easing into subprime credit card lending
TransUnion's report also indicates a rising trend among major credit card issuers, reaching back out to consumers with average and fair credit scores. Responding to unprecedented risk and to regulators' deleveraging demands, many banks cut access to credit for all but their most elite customers during the recession.
The move stabilized consumer credit cards, while raising banks' cash reserves. Now, shareholders want to see that cash put to work. TransUnion's Total Inquiry Index shows a 6 percent increase in consumer demand for credit compared to the same period a year earlier. A slight gain in delinquency rates leads to a sharper rise in the Credit Risk Index, since TU's analysts expect a ripple effect from boosting the number of fair credit credit cards.