As subprime borrowers began to default on their mortgages in rapidly growing numbers this year, credit card issuers increased their efforts to sign up such customers with tarnished financial histories, according to a market research firm.
Direct mail credit card offers to subprime customers in the United States jumped 41 percent in the first half of this year, compared with the first half in 2006, according to Mintel International Group. Direct mail offers targeted at customers with the best credit fell more than 13 percent.
As home values decline and lenders balk at writing subprime mortgages, these customers can no longer refinance and tap into home equity for cash. That leaves credit cards as their only option.
For credit card companies, the subprime market is a profitable one, analysts and consumer advocates say. Subprime customers, charged higher rates than those with better credit, are more likely to make minimum payments, maintaining balances that generate interest revenue for card issuers, consumer advocates said.
Credit card issuers have a successful record of managing the risk of lending to subprime customers, using sophisticated computer models to determine fees, interest rates, and lines of credit, industry analysts said.