Because the economy has been improving for some time now, many lenders are now broadening their efforts to extend financing to consumers from more troubled borrowing backgrounds. However, one segment of the population may still be having difficulty finding available, affordable credit.
Despite improvements in the overall lending ecosystem, many consumers across the country with low incomes or other economic vulnerabilities often have difficulty obtaining reasonable terms for various financial services they may need in their lives, according to a report from the federal Consumer Financial Protection Bureau. And, based on information culled from a round of meetings with many officials from the financial services industry, social workers and government employees, the agency believes there are several reasons for this.
For one thing, it seems that many lenders may want to reach these financially disadvantaged consumers, but do not know how to do so in a way that makes sense for both parties, the report said. Many may be willing to extend them credit, but the financial risk of doing so is so great that they must safeguard themselves with terms that reach into being unaffordable. Similarly, there simply may not be enough data about how to safely and successfully extend reasonably-priced credit to these consumers.
At these meetings, those in the financial industry learned from social workers just how difficult it is for low-income consumers to struggle under the weight of significant debts with high interest rates and other costly terms, the report said. Conversely, the government heard from those in the credit industry the challenges related to ensuring that products meet these consumers’ needs while also being financially viable for the companies extending the credit itself. If you’re worried you won’t be approved for a credit card because you have a lower income level or a checkered credit history, you can use the Credit Report Card to help match you with credit cards that are more suitable for your score range.
The CFPB’s experts will study the results of this round of meetings over the next several months to determine if a reasonable solution can be worked out, the report said. The goal will be to find a way for both lenders or other financial institutions and low-income consumers to find a reasonable way to make affordable credit more widely available and reasonable.
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Having the ability to afford credit for which they are qualified is of the utmost importance to consumers’ bottom lines. Even if they can qualify, they might not find the terms of an agreement to be conducive to their ability to afford the credit, which can lead to delinquency, default, and consequently lower credit ratings.
Image: bradleygee, via Flickr