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Credit Card Firms Target Rich Not Poor

Credit card companies are offering a number of incentives to attract wealthy customers as they seek to reduce exposure to the increasingly indebted low-income borrowers.

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This marks a reversal from pre-bubble efforts to woo lower-income borrowers, known as subprime.

This group had been attractive, because card companies could lift their interest rates at willand charge other fees that made lending to such a high-risk group profitable. The offers come as the rich are deleveraging and the poor piling on more debt.

The average wealthy borrower carries about $3,124 in credit card debt a month, $326 less than two years ago. By contrast, the average low-income borrower’s debt has risen by $100 over the same period to $2,464 a month, according to Synovate market re­search.

“The subprime households are still caught in a debt cycle, while the prime borrowers are paying down their debt,” said Anuj Shahani, who tracks the data for Synovate.

These borrowers are also paying sharply more for their money, reflecting their higher default risk. As of the fourth quarter of 2010, the average APR for borrowers with an excellent record of paying was 12.97 percent, according to Synovate. But borrowers who tend to miss payments and have a low credit score were being charged 18.65 percent.

Christian deRitis, of Moody’s Analytics, noted that while many high-income borrowers voluntarily paid down debt during the recession, most debt reduction among low-income consumers was the result of banks writing off those loans.

“Subprime borrowers who haven’t defaulted are worse off today than they were before the financial crisis,” said Mr. deRitis. That partly explains the flurry of offers aimed at the wealthy.

Bank of America has tested a credit card in recent months that offers borrowers $150 cash back with the first qualifying purchase. JPMorgan Chase boosted the points that can be earned with the first purchase on its Amtrak Guest Rewards card from 12,000 to 30,000, according to Synovate. Citigroup boosted the number of air miles that borrowers can earn in a year on its AAdvantage card from 30,000 to 100,000.

“In the 20 years we’ve been tracking this, we’ve never come across such good offers,” said Mr. Shahani. But he said the offers were almost exclusively to wealthy borrowers. He estimates that two out of three mailings are to super prime borrowers — those with the highest credit scores.

High unemployment am­ong the poor is a big factor behind this group’s rising card debt. People who did not finish high school are more than three times as likely to be out of work as are those with a degree.

The national unemployment rate may have begun to decline, but it remains at almost 15 percent among the least educated and most likely lowest earners.