Banks reject more card applications
By Fred O. Williams | Published: March 23, 2016
Credit card applicants are feeling the pain of rejection more often, according to a federal survey, possibly reversing the trend toward easier credit.
That's the implication of the Federal Reserve Bank of New York's latest Credit Access Survey, part of its Survey of Consumer Expectations series.
Of about 1,000 people surveyed in February, 17 percent said their applications for credit cards were turned down within the past year. In the previous two surveys, in October and June 2015, the rejection rate for applications was about 13 percent.
Although a single jump in card rejections may not signal a trend, the result was reinforced by data on other types of consumer loans. Access to home loans and auto loans continued to get easier in the February survey, emphasizing the chill in the credit card market.
"Reported rejection rates marginally increased overall, reflecting an increase in credit card application rejections," the New York Fed said in a statement, "while rejection rates for other types of credit fell."
Since the survey began in 2013, card rejection rates have generally been coming down. That's a boon for credit-seeking consumers, who were largely frozen out by card issuers following the recession of 2007-2009.
"Many credit card lines were closed during the financial crisis; a lot of that has not come back," said Diane Swonk, a former bank economist who heads DS Economics in Chicago.
Card use remains behind pre-recession levels – far behind, by some measures. Total balances on cards have been inching closer to their pre-recession peak of $1 trillion. But as a share of the economy, card use remains stuck at levels seen back in 1994, Swonk said.
"This is the year we thought we'd see a tipping point in credit cards," she said.
The opening of the card market is drawing applications from less creditworthy consumers -- and that could partly explain why bankers are tightening their grip. In the February survey, the share of card applicants shifted toward the lower end of the credit scale, as people with 760-and-higher scores accounted for 19 percent of applications, down from 25 percent in October 2015 and 28 percent in June 2015.
Other studies of credit card trends have found that access has eased lately for people with less-than-perfect credit. The American Bankers Association's quarterly Credit Card Market Monitor saw new cards issued to subprime applicants climb 30 percent in the third quarter of 2015, year over year.
Card use and access may never return to pre-recession levels in a consumer economy that has been transformed, Swonk said. With wages generally stagnant and student loans taking up a growing share of borrowers' resources, comparisons to the pre-recession financial world are difficult. "There's a lot of moving parts," she said.
See previous coverage: Card rejections fall in Fed survey
- Rejection of credit card applications rises, New York Fed survey shows – Consumers got turned down for cards at highest rate since 2015, New York Fed survey says ...
- The history of credit cards – From charge plates to Apple Pay, here's a look back at the many iterations of the credit card over the past 150 years ...
- Fed: Card balances jump $7.3 billion in May – Credit card balances continued their sprint toward an all-time high in May, according to the Federal Reserve ...