Every four months, the Federal Reserve Bank of New York releases its Survey of Consumer Expectations, which includes a fascinating appendix addressing credit access. The Fed surveys about 1,300 consumers per quarter, the last one ending in February 2015, to collect data about the demand and supply of credit in five categories, two of which deal directly with credit cards.
The latest results are good news for most consumers seeking credit or a loan.
With the exception of home mortgages, rejections of credit applications have dropped about 5 percentage points, to 25 percent in the latest survey, while demand for credit remained fairly steady.
The surveyed Americans, who were asked if they applied for a loan in the last year, said the banks are making it easier to increase their credit card debt by approving requests for higher credit limits.
You may be better off opening a new credit card instead of increasing your limits on existing ones.
While the rejection rates for new credit card applications have remained fairly steady, around 20 to 22 percent in the last year, the rejection rates for credit limit increases have plummeted in the last four month, from 38.5 percent to 24.3 percent (Figure 1 below).
In other words, the banks are finally loosening the credit card purse strings seven years after the economic crisis. That’s good news for consumers with pent-up demand, and is a stimulus to the economy.
Effects of credit scores
The data is even more interesting when we examine the effect of credit scores upon the number of applications for higher credit card limits. As Figure 2 reveals, those with credit scores at or below 680 who were applying for higher limits almost doubled over the past four months, from 12.2 percent in October 2014 to 23.8 percent in February 2015.
Don’t know your credit score? You’d be smart to check it today.
Taken together with Figure 1, it appears the consumers with the poorest credit scores are now receiving higher credit limits. Apparently, the banks are more sanguine about the abilities of credit card holders with fair to poor credit to manage higher limits responsibly.
The application rate for mortgage refinancing fell from 8.5 percent to 6.6 percent of those surveyed within the latest period, whereas the application rate for new mortgages rose in the same time from 5.2 percent to 7.0 percent. Mortgage rejection rates since October 2013, rising from from 12.3 percent then to 24.5 today, meaning it’s harder to get a mortgage.
However, the rejection rate for mortgage refinance applications dropped slightly to 24.2 percent. It currently appears easier to refinance an existing mortgage than it is to get a new one.
Photo credit: thetelegram.com
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