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Banks Are Stingier About Offering Credit

pile of credit cardsThink it’s easier to get a credit card now than it once was? Think again.

The U.S. economy has rebounded since 2009, and many consumers have cleaned up their balance sheets and reduced their debt. At the same time, U.S. banks are in much stronger shape than they were.

Yet, new data show that the biggest credit card issuers now are more picky about whom they hand out credit to.

The message from the banks: Once bitten, twice shy.

That means if you want a credit card from one of the big banks, you better make sure you have a high credit score.

If you have poor credit, be prepared to pay sky-high fees and interest rates to one of the smaller card operators who cater to people with poor credit, or consider getting a prepaid card.

PaymentsSource, a credit card industry publication, recently examined average borrower credit scores at the six largest U.S. credit card banks.

It found the big banks are extending an increasing amount of credit to those people with the highest credit scores than they did three years ago, while granting much less credit to those with the worst scores.

The data PaymentsSource looked at included only loans that have been securitized into bonds and not loans the banks hold directly on their books. However, the amount of securitized loans is a large sample, and it certainly suggests the big banks are indeed tightening, and not loosening, credit.

Credit score chart

The biggest change was at Citigroup, where credit card loans among customers with credit scores above 720 jumped from 38% of the bank’s securitized portfolio in 2009 to 55% in 2012.

At the same time, the bank cut in half the percentage of customers with the lowest scores.

Historically, Citigroup has had a reputation of being more liberal than its competitors in approving credit card applications. That doesn’t appear to be the case anymore.

chart showing low credit score customers

At Bank of America, the change was almost as drastic.

Card balances among customers with credit scores above 720 jumped from 38% of the bank’s portfolio to 52% in 2012.

The changes at Discover were similar. In 2012, 52% of card loans were owed by people with the highest scores, up from 41%.

Discover has a history of aiming at the middle class, but these numbers suggest the company is aiming to go a little more upscale.

American Express remains the most discriminating lender among the big card banks, but it’s gotten even choosier since the end of the recession.

In 2012, 63% of the company’s portfolio was among those people with scores above 720, up from 55% in 2009.

Chase had the next-highest customer score profile, and it too has become more choosy. Sixty percent of Chase’s card loans in 2012 came from people with 720-plus scores, up from 55% in 2009.

If you have relatively weak credit, you probably have a better chance of getting a card at Capital One, which seems to take more people with weak credit and hasn’t changed its risk strategy over the past three years as much as the other big banks.

In 2012, a quarter of the company’s loans were owed by people in the lowest score category, down slightly from 28% three years earlier. At the other end of the scale, 45% of its card loans were owed by people with 720-plus scores, up a little from 43% in 2009.

If you’re somewhere in the middle — your credit score is between 660 and 720 — you probably stand as much of a chance of getting a credit card as you did before the recession, although some of the bigger issuers have reduced their exposure to that group, too.

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