For most consumers, having at least one credit card is a necessity. Too often when we check into a hotel, rent a car, or when we book an airline flight, it is recommended we use a credit card instead of a debit card. The reason for this is simple, when these types of reservations are made, there is an automatic transaction made to the card. If you use your debit card, your checking account balance will be reduced until such hold is removed. This means those consumers who face credit challenges often need to think about applying for a subprime credit card.
Understanding Subprime Credit Cards
Credit cards in general are the most expensive forms of credit. Consumers with great credit ratings can obtain personal loans or home equity loans for less than most of the best credit card rates on the market. However, for consumers with lower credit scores, there are what is known as a subprime credit card. In effect, these cards are designed for those who are interested in obtaining a credit card but have credit scores between 580 and 619.
These credit cards tend to have higher fees, higher interest rates, and lower limits than credit cards offered to those borrowers who have “super prime” credit, or a credit score of 720 or above. The difference in interest rates is significant, with the average credit card rate being 17.54 and a subprime credit card rate averaging 25 percent for non-secured subprime credit cards.
Consumers and the Subprime Credit Card Market
Overall, during the first half of 2019, more consumers are opening new credit lines with both credit card companies and with retail credit cards. It is expected this trend means a larger percentage of subprime credit card usage since the overall increased usage of retail credit cards is more than 11 percent and the increase in standard credit cards is increasing more than six percent.
The extrapolated data showing only subprime card usage show purchases using subprime credit cards increased more than nine percent during the fourth quarter of 2018. During the early part of 2019, there has been a marked decrease in opening of new accounts based on subprime rates. This decrease is slightly more than 11 percent which could be a function of previously subprime borrowers using their credit cards more effectively and qualifying for cards with lower interest rates.
Subprime Credit Cards Will Continue Being Popular
Experian Credit did a study in which they evaluated credit scores across each state. This study resulted in some interesting data which explains why the possibility of an increase in the subprime credit market will expand during 2019. This study shows the following statistics:
- More than one-third of consumers only qualify for subprime credit cards
- Residents in 29 states fall into the subprime rate category
- Millennial consumers comprise represent 37 percent of subprime borrowers (consumers between the ages of 22 to 38)
- Generation X consumers represent another 33 percent of subprime borrowers
These numbers in of themselves tell us there is a high likelihood of the necessity of consumers having access to subprime credit cards.
Additional Reasons Consumers Turn to the Subprime Credit Market
Besides the necessity of needing a credit card for some transactions, there are other reasons why a consumer with less than perfect credit may opt to open a subprime credit card account. These cards are the ideal way to help those with less than great credit begin rebuilding their credit. Keep in mind, the fastest way to improve your credit score is to make regular credit card payments on time, as agreed.
Responsible credit card usage is important and failing to make timely payments can result in a lower credit score. For those consumers who have suffered a job loss, medical problems, or have recently gone through a financially challenging divorce, rebuilding credit becomes a necessity. Since most banks will not loan money to those who have subprime credit scores, it makes sense to those with lower credit scores turn to those companies who offer services in the subprime credit card market.
Subprime Credit Card Market Remain Necessary
There is demand for a strong subprime credit card market, particularly for those who have faced credit problems in the past and are attempting to rebuild a stronger financial future. Ideally, a consumer would be able to take advantage of a subprime card to start on the road to improving their credit score. When handled properly, the credit extended to a consumer by issuers of subprime credit cards allow those who have faced past financial challenges to be rewarded by being able to secure a better credit card rate in the future. Remember, lower credit scores do not happen overnight, and rebuilding credit does not happen overnight either. Using a subprime credit card is often the first step to a stronger financial future and finding the best subprime credit cards for your specific financial picture is a necessity.
