For years before the financial crisis, credit card offers were the iconic junk mail. In the immediate aftermath, many people noticed the tide of offers slow to a trickle and often found it difficult to apply for a card directly. Now The Wall Street Journal reports that banks are gaining enough confidence to resume sending out more offers, to the right people.
In the fourth quarter of 2007, before any hint of the coming collapse, credit card lenders sent 1.8 billion offers in the mail, according to data from Mintel Comperemedia. By the first quarter of 2010, that number had fallen to 826 million in response to a default rate that had risen to a peak of 11.5 percent in late 2009.
The most recent information from Moody’s Investors Service puts the default rate at a more moderate 7.2 percent, still nearly double the low point of 2006. However, the improvement was enough to encourage banks to start expanding their lending again, increasing the number of credit card mailings to 1.4 billion offers.
“As people think about risk, credit cards are an area where they feel comfortable building up their portfolios,” Judi Linville, the head of Citigroup’s credit card arm, told The Journal.
This openness has not come without qualification, however, as the Mintel’s data shows that roughly two-thirds of the these offers are going to households with an annual income over $75,000. Banks are targeting consumers with credit scores over 720, roughly in the top third of credit scores.
This group, however, is among the more likely to own a credit card. Card owners already have an average of 3.5 credit cards, according to the Boston Federal Reserve.
“The demand for these customers is incredibly high right now,” Megan Bramlette, a credit card consultant with Auriemma Consulting Group, told The Journal.
To gain what some in the credit card industry call “wallet share,” lenders are offering extensive initial benefits. Interest rates for high-credit consumers can reach as low as 10 percentage points lower than normal rates, many cards are including tens of thousands of airline miles from the start.
Despite these high perks, banks still benefit from the use of credit cards. Interest payments amount to substantial earnings, but credit cards also hold an added perk for lenders in that they are not covered by Dodd-Frank financial reforms limiting transaction fees.
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