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Easing credit restrictions may help Kentucky borrowers

According to a Federal Reserve Bank of New York survey released in February 2015, borrowers with credit scores under 680 had a roughly 50 percent chance of increasing their credit card limits. This represents an increase from October 2014, where a similar survey showed that borrowers with subprime credit scores had a success rate of roughly 33 percent. While this may be good news for borrowers with checkered credit pasts, it has consumer advocates concerned.

They believe that banks could be giving people access to credit lines that they may not be able to repay. In some cases, banks are increasing credit lines without the cardholder having to apply for the increase. Additionally, banks have been lowering interest rates and fees for subprime borrowers. Still, these consumer advocates argue that credit should only be extended to those who can afford to pay it off quickly or to those who plan to improve their credit score through higher limits.

Analysts have noted that increasing the credit limit of an existing borrower is different than extending credit to a new borrower. This is because the lender already knows what the borrower's tendencies are and whether they have a history of making timely payments each month. While some believe that this could lead to more missed payments in the future, the relatively light demand for credit and low number of troubled accounts means that some missed payments shouldn't impact lenders or investors.

Those who are having trouble making payments on their credit cards or other unsecured debt may wish to talk to a bankruptcy attorney who can explain the benefits of filing for bankruptcy, including obtaining a stay against creditors. This could put an end to harassing collection calls at home or work.

Source: Los Angeles Times, "Banks raising credit card borrowing limits for subprime customers", E. Scott Reckard and Dean Starkman, April 3, 2015

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