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Rejection of credit card applications rises, New York Fed survey shows

Signs of banks tightening grip on credit as card rejection rate climbed to highest level since 2015

By  |  Published: July 17, 2017

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations

Rejection of credit card applications rises, New York Fed survey shows

 

Rejections of credit card applicants climbed to the highest level recorded since early 2015, the Federal Reserve Bank of New York’s Credit Access Survey said Monday.

In June, people who had applied for a card within the past year reported being turned down at least once 19.6 percent of the time, up from 17.7 percent in February, the last time the thrice-yearly survey was fielded.

The last time rejections were higher was in February 2015, when they reached 20.4 percent.

“I think we’re probably at or past the point of credit being as easy as it’s going to get, in the near term,” said Scott Hoyt, senior director for consumer economics at Moody’s Analytics.“Balance growth has accelerated … banks don’t want to make the same mistakes they did 10 years ago.”

Signs of banks tightening grip on credit
Balances on cards have topped the $1 trillion mark and are on track to exceed their pre-recession peak. Hoyt said that the most recent Fed survey of senior loan officers also found signs that bankers are tightening their grip on credit.

As for applications, 29.5 percent of consumers in the June survey reported applying for a card within the past year, within the normal range set in the past three surveys. In February, 25.3 percent of respondents said they had applied for a card.

“I think we’re probably at or past the point of credit being as easy as it’s going to get, in the near term.”

“The share of ‘discouraged’ credit applicants reached a new series low,” the New York Fed said in an announcement, “but a larger share of applications were rejected compared to the previous survey.” “Discouraged” applicants for all types of credit, who say they are turning away from the credit market, fell to 5 percent, down from 7 percent in February.

Overall, 43 percent of those surveyed said they applied for one or more types of credit in the past year. Of them, 25 percent said they had experienced some rejection. On a per-application basis, the rejection rate was 37.7 percent, up from 35 percent in February.

Financial fragility, optimism about card application also rose
In other findings:

  • 6 percent said lenders had closed at least one of their accounts involuntarily, up from 5 percent in February. The June reading set a high for closed accounts since the survey began in October 2013. Fifteen percent said they closed an account voluntarily, up from 13 percent in February.
  • 10.5 percent said they will probably apply for a card in the next year, about the same as February’s 10.7 percent.
  • Asked the chances that their card application would be rejected in the next year, if they made one, consumers put the odds at 25.7 percent – somewhat more optimistic than the 29.8 percent odds of rejection they gave in February.
  • Financial fragility increased, as consumers put the odds of needing to meet a $2,000 expense slightly higher – 32 percent versus 31 percent – and the likelihood of having the money slightly lower – 67 percent versus 68 percent – than in February.

Three times a year in February, June and October, the Survey of Consumer Expectations Credit Access Survey gauges people’s appetite for credit cards, auto loans and home loans, and records their experiences in the credit market. It also asks consumers whether they expect to apply for a loan in the coming year.

See previous survey coverage: Applications dip, credit market shows signs of cooling off

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Updated: 07-22-2017

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