Bad Credit Score Still Impedes Credit Card Approval

by High Yield Savings Accounts

The Federal Reserve recently reported that banks have been easing their lending standards with their credit card offers. Unfortunately, this doesn’t apply to consumers with a bad credit score who are unlikely to get approved for new cards in the near future. Because banks continue to practice tight lending standards for consumers with poor credit scores, Moody’s Investors Service expects the default rate on low interest credit cards to drop next year to a 20-year low.

Credit Card Default Data

A cardholder’s balance goes into default and is charged off when the issuer deems it uncollectible. In 2009 and 2010, the top six banks which issue cards had defaults totaling $74.5 billion. These are the household names of credit-card issuers: Bank of America, Citigroup, JPMorgan Chase, Capital One Financial, American Express and Discover Financial Services.

Banks Ease Up For Some

A survey released by Credit Land recently revealed that banks have been easing up on lending standards, including approval of credit card applications. But this does not mean they are stretching their lending practices for consumers with poor credit scores. And especially not for consumers who were unable to pay their bills and were among the default accounts.  Banks have seen delinquency rates decreasing, though, as consumers improve their bill paying habits. Consumers who are paying their bills on time are the ones reaping the benefit of eased lending practices among banks. As for consumers who have recently had cards cancelled for lack of payment, it’s unlikely they will be approved for a new credit card anytime soon. But there are credit cards for bad credit, which could help consumers in repairing their credit history.

Moody’s Expects 20-Year Low

As banks tighten their lending belts for consumers with poor credit scores, Moody’s predicts a decrease in default rates. By denying high-risk consumers new lines of credit, banks are decreasing the number of balances they will have to charge-off in the future. An improvement in delinquency rates is also a sign that default rates should improve as time goes on. These factors have led Moody’s to predict a 20-year low of credit card default rates by next year.


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