Experian, the credit reporting agency, released a study last week that showed that subprime consumers (Experian credit score under 620) are more likely to be 30 days late on their mortgage payments than their credit card payments. The study also found that over the past four years, credit card lending to subprimers has increased 137 percent and mortgage lending to that same group has increased 58 percent.
On the face of it, it makes sense for consumers to pay down high interest credit card debt instead of lower-interest mortgages. But you won’t lose your credit card if you don’t pay your bill for a couple of months; you will lose your house.
While some would argue that extending credit to anyone regardless of their creditworthiness is egalitarian, I think it’s just unfair to those consumers. Besides the usurious interest rates, the terms and conditions are deliberately difficult to understand — as the House and Senate committees that have held hearings this year have found out.
Several of the major banks have abandoned practices like universal default and perhaps the threat of government rules for the credit card industry will bring them all into line.