Thursday, December 16, 2010, AM | 1 Comment
Recent news has it that the banks have opened up their treasuries to the general public, even to riskier borrowers but with stricter and tougher terms and conditions. Credit card ads are on the rise after a three-year slowdown. Banks want to make extra money. They want to revive a business that brought them huge profits before the financial crisis almost destroyed the credit scores of so many Americans.
As recently as six months ago, these riskier borrowers were turned down for credit, any kind of credit. Now it seems that banks have realized that letting selected folks borrow with stricter terms will make them more profit. It used to be that when these folks received application form in the mail, they were “pre-approved” and was written so on the application.
Banks have learned that to guard against another wave of losses, they must impose stricter rules on borrowers. Now many folks credit got lower as a result of bankruptcies and just bad economy in general. The new offer may turn out to be an opportunity for borrowers to improve their credit.
But there is a catch. The new cards have higher interest rates and annual fees. Lenders are cautious this time around and so should the borrowers. The idea behind the lending is banks think borrowers this time will be extremely careful and responsible to use their credit wisely.
So even though they may be riskier, lenders are looking beyond standard credit scores. They have laid out their plan on the theory that some riskier people on the surface may in fact show differences in their spending habits. The saving is up to the record level of $7.74 trillion at the latest tally.
Lenders want to take advantage of riskier borrowers who have wised up and are saving more than in a long time. Banks have hired consultants for their advice and they have in turn defined and put the borrowers in different categories.
These are folks whose credit scores were damaged because they simply walked away from their homes when their mortgage went underwater. These borrowers make a good living but made bad judgment in real estate.
When the recession took over the economy, many folks got hurt even though they had good credit score. They lost jobs and could not pay their monthly installment. Many may have found jobs and the banks are eager to lend them.
They were the ones that banks lend them knowing pretty well they could not pay their monthly payments. If these borrowers have improved on their jobs with more money, then banks would be targeting to lend them.
These are folks who frequently missed their monthly payments. They are at high risk. Banks would be reluctant to lend them.
These were folks who were just simply defiant to pay and were quite boldly resisting. Banks would be quite hesitant to lend them.
In a Nutshell
The goal of the banks would be to weed out the riskiest of the riskier and to identify consumers whose credit scores are blemished but who still have the money to pay their bills.