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After a long period of cutting back on credit card offers and otherwise tightening terms, credit card companies may be getting ready to increase lending again. Card issuers boosted the number of credit card offers they sent out in the last three months of 2009 by 47 over the previous three months, according to direct mail researcher Mintel Compermedia.
Still, for people with bad credit scores, there was bad news: they are not likely to be invited to the party. In a recent survey by Federal Reserve, most major banks, which include the largest credit card lenders, indicated that they continue to be less likely to grant credit to consumers with poor credit, even as they are easing the pull-back in lending in general.
There is already evidence of this: the number of new credit cards issued to people with bad credit fell by 63 percent in the second quarter of 2009 compared to the second quarter of 2008. And it’s not likely to get any better. Credit card companies are struggling with record credit card defaults, making them wary of approving new credit card applications from people with less than perfect credit, who traditionally are more likely to default.
The credit score required to get approved for a new credit card has already been going up, according to Experian, one of the three major credit reporting agencies. While the credit score criteria vary, FICO scores below 700 will generally make it difficult to get approved for credit cards with the best terms.
And although it’s always possible to apply for credit cards for people with bad credit, these so-called subprime credit cards come with rather onerous terms. Starting credit limits are typically as low as $250-300, and the fees charged are high. With the new Credit CARD Act, which steps into effect at the end of February, annual fees have to be limited to 25 percent of the credit limit. Still, for a card with a $300 credit limit, you’d pay $75 in fees every year for the pleasure. Not exactly a bargain.
In short, there never was a better time to improve your credit, if you don’t already have a good credit score. The basic guidelines for improving credit scores are fairly simple:
- pay all your bills on time,
- pay down your credit card debt to less than 30 percent of the credit limit on your cards,
- don’t apply for new credit very often, preferably only once a year or less,
- don’t close old credit card accounts, and
- use a range of different types of credit, such as a car loan or mortgage, in addition to credit cards.
In addition, one of the easiest, and not so well-known ways to boost your credit score could be to check your credit report for errors. Pulling your credit report and disputing any errors you find could give your credit score an instant fix. An estimated seven out of ten of credit reports contain errors, and while some of these may be insignificant, others could be pulling down your credit score without your knowledge. It’s cheap too: you are entitled to one free credit report per year at AnnualCreditReport.com.
