More people opened new credit card accounts last year, as the banking industry began to loosen standards it tightened during the recession.
The number of new cards issued to consumers rose 14 percent in 2011 to about 42.3 million, according to data provided by TransUnion. And about a quarter of those cards _ roughly 10.7 million _ went to people with less-than-stellar credit histories, TransUnion said.
The credit reporting agency said the increased lending to people with lower credit scores doesn't mean the climate has shifted back to where it was in 2006 and 2007. Lending standards have tightened dramatically since then, said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit.
But the combination of tight competition for top-rated consumers with improvement in the economy is encouraging banks to take a closer look at lending to consumers who made a few mistakes in the past. This is the second straight quarter that subprime consumers are getting a larger slice of the credit pie than they did during the depth of the Great Recession.
Becker noted that today's "subprime" card holders are different from their counterparts were during the credit bubble that preceded the recession.
Most borrowers who ran up big balances that they couldn't pay off are now out of the system because their banks have written off their cards as uncollectible. And they are not getting new cards _ and won't be for years. Moody's Investors Service estimates credit card companies wrote off at least $75 billion in 2009 and 2010 alone.
But card users who had a little trouble and dinged their credit scores with a few late payments in the past are regaining the ability to open new accounts. "In some sense, subprime today is stronger than subprime yesterday," Becker said.
Another factor helping make credit more available is that the rate of late payments has fallen dramatically in the past two years. Just 0.78 percent of card holders were late with payments by 90 days or more during the fourth quarter, TransUnion found by culling data from a random sampling of about 21 million credit reports.
That rate is up slightly from 0.71 percent in the third quarter, but it's the lowest year-end rate since 1995.
Prior to the financial crisis, Becker said, typically about 2 percent of all accounts were behind by three months or more _ a measure used because it marks a point where getting payments back to current status is difficult. Card companies are stricter now about cutting off accounts and limiting credit for customers who show a pattern of late payments.
Becker said the data also indicate that card users are continuing to put more emphasis on making card payments on time than mortgage payments, a trend that started during the recession that is the reverse of typical payment behavior before the housing crisis and the spike in unemployment.
But the uptick in late payments during the fourth quarter, and an increase in the average balance to $5,204, from $4,965 a year prior, indicates a return to seasonal patterns seen before the recession. Holiday spending leads some card holders to put off paying their bills. If the seasonal patterns continue, the late payment rate will fall as poeple receive tax refunds and use that money to bring their accounts current.