Credit Cards For People With Fair Credit Ratings In Short Supply

While credit card companies are aggressively courting consumers with excellent or bad credit, consumers with fair credit have fewer options.

While the economy's fledgling recovery is reviving America's love affair with debt, many credit card companies remain surprisingly cautious in courting customers.

"Back during the boom years, pretty much every inch of the credit spectrum was being covered," said Ben Woolsey, director of marketing and consumer research at Creditcards.com, in an interview with The Huffington Post. "Subprime issuers [who focus on people with low credit scores] were expanding up to better quality, and super prime issuers [who focus on people with high credit scores] were expanding down to get more people."

Today, however, Woolsey sees a dead zone in the credit card market for customers who have neither really good nor really bad credit but rather hover somewhere between the two extremes.

"The no man's land is for people with fair credit," said Woolsey.

While credit card companies have resumed aggressively targeting customers with especially good credit scores, and even jumped back into the market for customers with bad credit scores, they are reluctant to reenter the fair credit market because they lost money on these customers during the recession, explained Odysseas Papadimitriou, CEO of Cardhub.com.

"With fair credit, some people won't pay you and some will pay you, so there's much more uncertainty," said Papadimitriou in an interview with HuffPost. "When the economy was doing well, these customers did well, so issuers felt more comfortable with them. But when the economy turned, suddenly there was much more volatility in how they performed, and a lot of issuers got burned and left that part of the market."

Once bitten twice shy, credit cards companies now prefer to stay in their wheelhouses, with the big banks focused primarily on the consumers with excellent credit, and the small, niche issuers focused on the consumers with bad credit, explained Papadimitriou.

While there are some issuers serving the fair credit market, there aren't very many, and the lack of competition leaves consumers short on options.

That lack of competition is compounded by the various bank acquisitions that have occurred in recent years. Credit card companies previously active in the fair credit market are now retreating, according to Papadimitriou who uses Chase's 2008 acquisition of Washington Mutual as an example.

"Chase, who bought Washington Mutual, doesn't seem to be interested in going into the fair credit space where Washington Mutual was a strong player in it," he explained.

While Woolsey and Papadimitriou agree that the credit market for fair customers has contracted, they differ on the definitions of "fair credit." For Woolsey, the segment includes borrowers with a FICO score between 620 and 659, while Papadimitriou defines the market more broadly as a FICO from 620 and 720.

A FICO score is a figure calculated by the Fair Isaac Corporation to determine a consumer's credit-worthiness. While the median FICO score is 710, nearly 22 percent of Americans score between 600 and 699, according to the Fair Isaac Corporation.

To learn more about your credit score, check out this guide from the Federal Trade Commission on how to safely get your credit history. It is important to note that there are numerous fraudulent credit score websites, so learn the difference between legitimate and fake sites before providing any personal information.

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Comments

[Jay Gould]

04:32 PM on 05/16/2012

Increased lending and higher balances have led to lower credit card interest rates in the past couple of years, according to a recent study by two Cleveland Fed researchers. There is a clear inverse relationship between the changes in the APR and the outstanding credit card debt: the higher the debt, the lower the interest rates. Take a look at the charts at http://blog.unibulmerchantservices.com/increased-lending-higher-balances-lead-to-lower-credit-card-aprs.

[oldwolf49]

11:48 PM on 04/24/2012

THE best credit card to have is the non-existent one, the one that does not charge interest, the one that does not get stolen the one that does not offer fabulous intro rates and then jack them up after a month because you might have been late on a payment because of the post office. That is the best one to have.

[edejan]

08:32 PM on 04/23/2012

Well, look at the silver lining. If you can't get a credit card, it's easier not to become overwhelmed with debt. If you're buying groceries with a credit card, retrench and learn to eat simpler. If you're buying "luxury" items with a credit card, you don't need them and ultimately you will be happier without all those material goods you'll be paying for long after they're gone.

[Neil Lopez]

09:53 PM on 04/22/2012

We'll it's business after all and in our generation, Credit Cards is also for convinience

[James Spray]

05:47 PM on 04/21/2012

Loren Berlin - Your article was good, to a point. However, in the final paragraph you switched topics from scores to credit and gave no information on how one can obtain their FICO Scores. In the final paragraph you pointed out there were legitimate and fake sites and warned folks to learn the difference with no guidance on how do so do. Perhaps a follow-up article to delve into this information would be in order? Meanwhile a number of the FAKO sites are discussed in this blog: http://bit.ly/AsHSdI

[DSevere]

12:40 PM on 04/21/2012

Well, gee, I'm one of those fair credit people, I guess I should be happy I have enough credit cards already...

[randinoel]

12:38 PM on 04/21/2012

Credit card interest is ridiculous and due to this economy- things should have changed and some rules should be bent. I recently closed down some cards and had to get a lower paying job which payed me less than 12,000 a year. I was willing to commit to a payment every month, just 10 dollars lower than the minimum, and they refused. Instead, they told me that they would tack on a late fee every month and interest charges, for a maximum of 6 months. How is that fair, when I explained my situation and STILL tried to work with them?

[MIKEinNYC]

01:27 PM on 04/20/2012

Credit card companies are no better than street-criminal loan sharks.

In my state, New York, the maximum rate of interest that a lender may charge an individual is 16% so what the credit card companies did was move their operations to some other state that permits exorbitant, usurious interest rates.

What we need is Federal legislation that would limit credit card interest to the maximum permitted in the state where the indebtedness is incurred.

[Ichigo Kurosaki]

01:01 PM on 04/20/2012

Credit card interest is exactly how banks make money. Yes, there are still few ripples from the bust, but things are returning to course. Banks are already starting to peddle their cards to college kids again.

[berrycuda]

12:27 PM on 04/20/2012

Banks issuing these cards are simply not very bright.

I am bombarded by "pre approved" credit card offers daily. (at least one per day)
I make less than $40k per year...

I do have a FICO score that averages around the 816/820 level (hey I actually pay MY bills, sue me). But they won't give credit to people who make 5 time as much as I?

I think one of thier biggest problem IS the FICO score they rely on. They should only use that score as one factor to determine credit worthyness...

[harveyr2]

12:13 PM on 04/20/2012

Credit cards are a privilege, not a right. The credit card companies have plenty of spreadsheet jockies to find the best and the worst probability customers. There is absolutely no reason that they should provide credit to those who are high risk.

[Chimoch]

02:47 PM on 04/20/2012

Did you read the article? They are denying people with "fair" credit.

[harveyr2]

04:28 PM on 04/20/2012

In other words, they are a repayment risk. Fair is below good and far below excellent.

Nonetheless, the credit card issuers can deny credit to whomever they deem for whatever reason they choose.

[econ1]

12:06 PM on 04/20/2012

Actually this is a good thing. Banks should not be giving credit cards with their high expenses to people who shouldn't have them.....we did this with mortgages and it turned out badly. Debt can be a difficult thing to get out of...for individuals as well as countries.

[IslamicPacifist]

06:40 PM on 04/20/2012

Then why do they issue cards to people with "bad" credit and not "fair"?