Credit card issuers targeting those with damaged credit

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Credit card solicitations in your mailbox are poised for a big comeback in 2011, thanks to new analysis of customers with damaged credit.

Several months ago, I talked about how I noticed more and more credit card solicitations at my home. Somebody said, “Well, of course, they’d be sending them to Clark Howard!” But it’s not just me. The handful of banks that control 90% of the nation’s credit portfolio are ramping up solicitations to even what we traditionally think of as the least creditworthy customers.

The New York Times reports the credit card companies will mail out nearly 2.5 billion solicitations in 2011. By contrast, at the peak of credit mania in 2005, they sent out 6 billion. So we’re at not quite half, but that number is still way up from 2009 and even 2010.

After working off all the charge-offs of the Great Recession, issuers have gone full circle and are again pursuing customers who they may have turned down as recently as 6 months or a year ago. That’s because they’re now slicing and dicing people with low scores into 5 new categories:

  • Strategic defaulters have “credit scores [that] were damaged because they walked away from a home when its value dropped below what was owed on the mortgage,” according to The New York Times.
  • First-time defaulters are those who “fell behind on some sort of loan payment after losing a job, not from taking on too much debt.”
  • Sloppy payers “pay only some bills on time.”
  • Abusers “are defiant about paying.”
  • Distressed borrowers “simply do not have the means to pay.”

Capital One increased solicitations to people with damaged credit 50 times over compared to what it was a year ago. And they’re not alone. Other lenders have increased similar solicitations by 10 times.

So even with bad credit score, you could fit into one of the above categories (usually the first 2, not the last 3) that they think is worth the risk. You could get a regular, real credit card even with damaged credit.

Now, I’m not encouraging people with damaged credit to say, “Yippe, I can get credit!” But there are direct advantages to charging only what you can afford to pay when the bill comes in each month. And as far as I’m concerned, that’s all positive.



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