Fewer young people and people with low credit scores are applying for credit cards, according to a new consumer survey from the Federal Reserve Bank of New York
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Credit card applications have fallen among young people and those with low credit scores, according to a new consumer survey from the Federal Reserve Bank of New York.
The survey of 1,200 people conducted every four months shows that the makeup of applicants is shifting, with the share of young applicants shrinking. Those age 40 and younger made up 31 percent of all credit card applicants in October. That’s down from 37 percent a year earlier. During the same time, the fraction of applicants with sub-680 credit scores also fell about 10 percentage points.
Why would younger consumers and those with lower scores be losing interest in cards?
Other research from the Fed points to a shift toward debit cards by younger people. Millennials age 18 to 32 are increasingly turning to prepaid, general-purpose debit cards to handle their transactions, the Federal Reserve Bank of Philadelphia found. Younger people also tend to have more student loan debt, squeezing their available funds.
The New York Fed’s survey showed that overall, the appetite for cards — and the chances of getting one — held fairly steady over the year. About 28 percent of respondents had applied for credit cards in the past year, about the same as in October of 2013. Of people who applied for credit, 22 percent said they’d been turned down, almost the same fraction as a year earlier.
Since the recession, income growth hasn’t been robust for people on the lower rungs of the economic ladder, and reduced home values are still hitting many consumers, said James Marple, senior economist at TD Economics. “There’s an overall restraining factor on consumption growth and credit,” he said.
The appetite for credit cards in the future is modest. Only 7 percent of people age 41-59 said they expect to apply for a card in the next year. People 40 and under were only slightly more likely, at 12 percent. Those age 60 and over had the lowest appetite for cards, with just 5 percent saying they plan to apply in the next year.
The New York Fed survey, in which a rotating panel of consumers answer questions about credit cards, auto loans and mortgages, has been conducted since October 2013. Consumers were asked if they had applied for one of the loan types within the previous year. If so, they were asked if the loan was approved or rejected. The first full year of survey results were released Thursday as part of the bank’s Survey of Consumer Expectations.
Auto loans were easier to get than credit cards, the research showed. The rejection rate for auto loan applications was 7.6 percent in October, down from 10.3 percent a year earlier. Consumers applied for fewer auto loans than credit cards, however, with an application rate of just 14 percent.
Consumers’ appetite for home mortgages is sinking while rejections climb, the survey found. The application rate for home loans was 5 percent in October, off from 7.7 percent a year earlier. The rejection rate rose to 23 percent in October, from 12 percent in October 2013.
See related:Fed: Banks ease grip on cards