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Granting credit cards with low credit limits to consumers with thin or blemished credit files can help those consumers build better credit while helping issuers safely build their card portfolios, according to the results of a new survey. Citizens for Equal Access to Credit, a new, Washington-based nonprofit coalition formed to increase credit access for low-income and underbanked Americans, released the study this week. On behalf of the coalition, credit bureau TransUnion LLC analyzed credit reports of 365,000 consumers between December 2005 and January 2008. The study found 35% of consumers with low-limit credit cards having credit ceilings between $300 and $400 improved their VantageScore credit scores by at least one point over the course of those two years. Nearly 20% of consumers designated subprime in December 2005 had increased their scores to near-prime, prime or super-prime by January 2008, according to the study. Some 58% of the consumers received a promotional offer for credit from a nonsubprime lender in the final year of the study. Fourteen percent of consumers studied opened card accounts with credit limits between $1,000 and $2,499 during that period, and another 14% opened card accounts with credit limits above $2,500. Ernest Baynard IV, a spokesperson for Citizens for Equal Access to Credit, tells CardLine that issuers reject a high percentage of applicants for low-limit credit cards. "Subprime issuers use very high standards in selecting applicants," Baynard says. "However, low-limit cards are a useful and safe way for many Americans to get a second chance." He adds that many issuers charge high start-up fees for subprime cards to help cover their higher risks, thus creating a barrier to card ownership for many low-income consumers.
