Research and Statistics

Card applicants getting approved more often, NY Fed says


Credit card applicants met with success more often in the past year, New York Fed survey says, as applicants’ credit improved

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Applicants for credit cards and other types of consumer loans are getting approved more often, according to a survey released Monday by the Federal Reserve Bank of New York.

Credit applicants are also more creditworthy, as fewer card applications came from people with subprime credit scores, the October survey indicated.

While 28 percent of consumers said they had applied for a credit card in the past year, only 14 percent of the applicants were turned down.

Slightly more people applied for a card in June, the last time the survey was fielded, at 29.5 percent, but the rejection rate was significantly higher: 19.5 percent.

Credit card applications

How people’s experiences with applications for credit changed (October survey results compared to June survey):

  • 28.2 percentapplied for a card, down from 29.5 percent
  • 14.4 percent rejected for card, down from 19.6 percent
  • 12 percent sought a credit limit increase, versus 12.2 percent
  • 24.9 percent were rejected for a higher credit limit, down from 28.3 percent
  • 10.6 percent said they are likely to apply for card in 12 months, versus 10.5 percent

Credit approval rose, applications dropped slightly

“Consumers’ recent experiences were positive,” the New York Fed said in an announcement. The regional Fed bank pointed to the rising approvals and a shrinking share of “discouraged” applicants, which reached a new low in the series of 4.9 percent.

The survey on credit access is part of the New York Fed’s Survey of Consumer Expectations. Begun in 2013, it polls a representative panel of consumers about their credit experiences three times a year, in February, June and October.

Looking at consumer loans overall, 42 percent of people in the October survey said they applied for at least one sort of credit in the past year, down slightly from 43.6 percent in June. The survey asks about people’s experiences with home loans, refinancing, car loans and requests for credit limit increases as well as credit card applications.

“Consumers’ recent experiences were positive.”

Fewer credit applications rejected

Of people who had applied for one or more types of credit in the past year, 19 percent said they were rejected, down from 25 percent in June. Looked at per-application, 31 percent of applications were turned down, versus 38 percent in the June survey.

The results come during a time of transition for the credit card market. After shedding balances during the Great Recession, card users have been building up balances again toward their pre-recession levels as the economic expansion continues.

As a result, default rates have begun climbing from their post-recession low levels, and banks have started to tighten their standards for new accounts and increases in credit limits to existing customers.

More approvals, better credit scores

The increase in loan approvals came as the makeup of applicants changed, the Fed survey showed. In October, 33 percent of credit card applicants had credit scores below 680, down significantly from 40 percent in June. The share of applicants with scores above 760 rose 1 percentage point, to 25 percent.

The higher creditworthiness of applicants helps explain their higher success rate, at a time when banks are tightening standards.

Also, the survey of consumers picks up people’s experiences with nonbank lenders – such as credit unions and finance company auto loans – that are not included in the poll of bank loan officers, said Richard Moody, chief economist at Regions Bank.

“While banks are tightening lending standards on auto loans and credit card loans, nonbank lenders are not,” Moody said in an email interview.

“While banks are tightening lending standards on auto loans and credit card loans, nonbank lenders are not.”

More optimism about credit access

Among other findings from the October survey:

  • 13 percent said they had closed at least one type of credit account, down from 15 percent in June.  Five percent said they had an account closed by a lender, versus 6 percent in June.
  • 69.5 percent said they could come up with $2,000 for an emergency expense, up from 67.1 percent in June.

People’s perception of being able to get credit in the year ahead grew more optimistic. In credit cards, people put the odds of having a card application rejected at 23 percent, down from 25 percent in June.

“The average perceived likelihood of a credit application being rejected, conditional on applying over the next 12 months, declined for all credit types,” the New York Fed said.

Applying for a card?

See related: Rejection of credit card applications rises, New York Fed survey shows, NY Fed: Credit card delinquencies continue to rise

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