America's worst borrowers are grabbing credit cards like it's 2006

Liberty Street Economics

The Liberty Street Economics blog at the Federal Reserve Bank of New York just published a study on recent developments in consumer credit card borrowing.

The study has a bunch of interesting information, but there is one key takeaway.

Subprime borrowers are gaining access to credit cards at an accelerating rate.

"New card issuance ... has been expanding since 2009, and especially so for those with lower credit scores," the researchers said. 

A part of this increase is a result of the closure of accounts in the preceding years. This group was heavily impacted by the recession, with nearly half of all credit card closures in 2010 and 2011 belonging to those with credit scores of 660 or less. Here is the key line (emphasis ours):

"Reversing the sharp net decline in the number of credit cards during 2008-10, in recent years, the level of new card issuance to this group has been strong and is now approaching pre-recession levels. "

There are important differences between this increase and the increase in subprime credit card borrowing in the boom years.

Liberty Street EconomicsWhile less creditworthy borrowers are getting new cards, the median credit limit was $1000 in 2015. In contrast, the median new card credit limit for those with a 780+ credit score was $8,000.

In other words, the group with lower credit scores is seeing an uptick in new cards, but with modest credit limits. The share of subprime borrowers with relatively low credit card limits is close to hitting a new high, according to the research.

The researchers said:

"Although new cards are disproportionately issued to lower credit score borrowers, the overall extension of new credit, measured by increases in aggregate credit limits, continues to go overwhelmingly to those with credit scores above 720."

In addition, around half of borrowers with subprime scores have credit cards, versus more than 60% in 2007.

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