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Fed survey: Credit card rejections plunge

Summary

The share of card applicants who were rejected for a card in the past year fell to 13 percent from 20 percent, the Federal Reserve Bank of New York said

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Rejections of credit card applications plunged to a record low in a June survey, the Federal Reserve Bank of New York said Tuesday, as banks loosened their grip on several  types of consumer loans.

Asked about their encounters with lenders’ rejection stamps in the past year, 13.5 percent of people who had applied for a credit card said they had been turned down, compared to 20.4 percent in February, the last time the survey was conducted. A year ago, in the June 2014 survey, 20.2 percent of applicants said they were turned down for a card.

The fraction of consumers who said they applied for credit cards within the past year — 28.8 percent — was roughly the same as in February and a year ago.

The New York Fed began tracking the credit market in 2013 with its three-times-a-year SCE Credit Access Survey, a segment of the Survey of Consumer Expectations.

The June survey shows “a significant improvement in credit market experiences,” the reserve bank said. Rejection rates dropped by at least 5 percentage points for each of the types of credit surveyed.

The results backs up bankers’ contention that they’re being less tight-fisted with credit, said Scott Hoyt, senior director of consumer economics at Moodys.com. Surveys of bank senior loan officers have pointed to gradual increases in loan approvals.

“Certainly the issuers say they’re loosening standards,” he said. In addition, balances on cards have been moving higher. in recent months, which could be partly the result of more cards being granted.

However, Hoyt said the size of the drop in rejections was surprising. “Directionally it’s probably right,” he said, “but any time you get into survey-based data, there’s a lot of volatility.” Results in future editions of the survey should show whether the June movement was overstated, he added.

Overall, 34 percent of those surveyed said they had applied and been accepted for some form of consumer credit in the past year, while 8 percent said they had applied and been rejected, down from 10 percent in the February survey. The survey, based on a total of 1,248 responses, asked about people’s experiences with auto loans, mortgages and mortgage refinancing as well as credit card applications.

Among the other insights into the state of consumer lending from the survey:

  • 17 percent of respondents said they had been rejected for a credit limit increase on a card in the past year, down from 24 percent in February and 33 percent a year ago.
  • 11 percent said they were likely to apply for a credit card, compared to 7 percent a year ago.
  • 15 percent applied for an auto loan, down slightly from 16 percent in February. The rejection rate for auto loans fell to 3 percent from 8 percent.

Applications for credit cards came heavily from consumers with lower credit scores, a demographic portion of the survey found. Of consumers who had applied for a card, 39 percent had a self-reported credit score less than 680.

Looking ahead, about 11 percent said they are likely to apply for a credit card in the next 12 months, roughly the same as in February.

See related: Fed: banks keep tight grip on card loans

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