Credit Card Companies Are Always Looking For This Person

subprime lending 2012The New York Times is reporting that banks are courting people with bad credit again, after taking a post-Lehman hiatus over the past few years.  We’re supposed to be surprised that the lenders have run out of people with good credit as potential customers, and are now going back to the till for the sub-prime borrowers.

The article notes that

Credit card lenders gave out 1.1 million new cards to borrowers with damaged credit in December, up 12.3 percent from the same month a year earlier, according to Equifax’s credit trends report released in March. These borrowers accounted for 23 percent of new auto loans in the fourth quarter of 2011, up from 17 percent in the same period of 2009, Experian, a credit scoring firm, said.

Wait, you’re shocked about this?  Oh come on – here’s the deal.

Of Course They Offer You More Credit!

What The Grey Lady fails to report, however, is the fact that people who are coming out of bankruptcy are in many ways better credit risks than they were the moment they went into the court system – even if they don’t make a dime more than they did previously.

When you go into bankruptcy, you’re saddled with a bunch of debt.  You’ve got collection agencies fighting for your last dollar, and lawsuits coming down the pipeline fast and furious.

This is a bad time to lend you money because whatever you’ve got is being eaten up by the other creditors.  Simple math.

The other side of bankruptcy, however, is a different story.  You’re (for the most part) debt-free, and whatever disposable income you’ve got is your own.  If you get into trouble again you’ve got only a limited ability to use the bankruptcy system again for a number of years.

You have no credit, you owe no money.  Banks would like to lend you money because then you will pay them more of your hard-earned cash.

You, my friend, might as well be walking around with a target painted on your back. Great time for some bottom-feeder like Capital One to stick a card in your face.

The Paternalistic Consumer Advocates Wave Their Banners

Of course, consumer advocates are waving the banner that you need to be protected from your own bad habits.  The articles notes

Consumer advocates and lawyers worry that the financial institutions are again preying on the most vulnerable and least financially sophisticated borrowers, who are often willing to take out credit at any cost.

I can’t blame the credit card issuers for trying to get back into your wallet.  That’s what they do for a living – get people to use credit cards.  They assess risk and make decisions accordingly.

Banks are not your parents, nor are they your caretakers.  It’s no more proper to rail against their choice of potential customers than it is to get angry about the fact that Bank of America advertises in magazines read by people with bad credit.

It is your responsibility to make an intelligent decision about whether to get a credit card.

Be Smarter By Never Forgetting

Remember what brought you to financial ruin the first time around, and how difficult of a decision it was to file for bankruptcy in the first place.

Remember how awful it felt to be at the mercy of the debt collectors.

Don’t shake your fist at Capital One – they’re just trying to maximize profit.

Don’t curse the system that allows them to do so – that’s capitalism.

If you want to get angry, call your high school teachers and ask why they never taught you about personal finance.  Call your parents and ask them the same question.

Then, once the anger has subsided, rip up that offer for a new credit card.  You’re better than that.

Image credit:  Erik Mallinson

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About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.