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Instant Online Credit - a Good or Bad Thing?
If not for the tragic situations, it would almost be comical how easy it is to get instant online credit approval with virtually no hassle and often no credit check, even for bad credit people.It seems that no matter what problems are reported on a person's credit report, lenders and credit card issuers have a line of credit to offer. While such fast easy access can be a benefit, if placed into the wrong hands the added debt could just as quickly become a financial disaster.Getting credit was once a priviledge, and was not available to every person as there were no federal regulations to control all lenders. But now, lenders and credit card companies make it easy for anyone to approach for a loan or a credit card. In fact, they make it all too easy. Don't want to physically walk into a bank? No problem... You can apply by mail, by phone or through the internet. And; often, even if you don't contact them, they will contact you themselves with an offer of credit.In the U.S., borrowing has become a way of life for many, and is now at an all time high. Per a Business Week report, Americans owe almost every cent of their 'after-tax' income to repay existing loans, credit cards and other line-of-credit purchases. This rate is up from 75% in 1992, following the end of the last recession. The average credit line today is about $3,500, compared to almost half that amount ($1,800) only 10 years ago.And there's plenty more credit being offered. Credit card issuers have more than $3 trillion of unused lines of credit available. If you broke that down to an average per household, that would come to $30,000 per family. So if you have a fair credit score, you could easily tap into that line of credit at an interest rate of 5% or less over the current prime rate. You'd likely also get approved for a credit card with no annual fee or a card with high rewards. This includes a gold or a platinum credit card.Considering how much money that is on the table for consumers to borrow, Americans are showing a fair amount of control. According to Fair, Isaac and Co. (FICO), the typical consumer has access to $12,190 on all credit cards combined. It says more than half of all people with credit cards are using less than 30% of their total credit card limit. In fact, in 2002 the total unused available credit offered by bank credit cards was $1.8 trillion.However; per FICO, just over one in eight credit card holders use 80% or more of their credit limit. And about 10% of card holders carry balances over $10,000.So, as credit card companies and lenders continue to make it easier for consumers to get their hands on credit cards and loans, will more consumers lose self-control?As for credit card company offers, they are producing cards for every type of person and interest.There are student credit cards, business credit cards, environmentalist credit cards and traveler credit cards, which barely begins the list. There are rewards of all types, even cards for people with no bank account.And then there are loan lenders, offering all types of loans to all types of credit history people including subprime.Card companies divide potential customers into either the prime (good credit) or the subprime (bad credit) markets, referring to the prime interest rate set by banks as a benchmark for other loans. The top tier of borrowers; determined by their credit scores, can get a line of credit on a Platinum card at an interest rate around 12%. A Gold card carries an average interest rate of 15%, and a standard credit card charges rates around 17%.In the subprime market, credit cards offered to bad credit people may be issued with no security deposit, yet credit limits start out low such as $100 to $500, and fees can be hundreds of dollars and interest rates can easily reach 30% or higher.Bad credit people; though considered a high risk, have been a viable market for subprime lenders, accounting for 20% of credit card accounts.These troubled credit people either willingly; or blindly, accept the high fees and rates as their plight.But credit card companies and loan lenders may soon discover; and share; the pains of bad credit people as our uncertain economy continues. Subprime issuers are already writing off losses in the 15% to 17% range, versus the average loss rate of 6.5%. Delinquency rates among subprime card issuers average about 10% while those for the rest of the lending industry average just 5%.As their customers' finances suffer and they default, issuers and lenders are also feeling the pinch - and defaulting, too. For example, NextCard; Providian; and, Metris.But the problems of issuers and lenders is pale when compared to the record 1.3 million cardholders who filed for bankruptcy last year.
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