Americans expect it to become harder to obtain a new credit card over the next year, to the point that many are no longer bothering to apply.
The New York Fed’s Survey of Consumer Expectations found that the share of respondents who expect it to be harder to obtain credit a year from now jumped to 46.7% in February. The share of discouraged borrowers—those who want credit but did not apply for fear of being denied—reached 8.5%. That’s the highest percentage since the New York Fed began its survey in 2013.
The percentage of individuals being denied an increase in their credit limit is also high. After surpassing 40% in October—another record high for this survey—it was still at 39.7% in the most recent Fed report.
“Consumers are worried about getting more credit,” said Brian Riley, Director of Credit at Javelin Strategy & Research. “But in an uncertain economy, we will have to see if the need for more credit outweighs the objective of resisting it, if they can.”
Delinquency Rates Remain High
Issuers are understandably worried about their lending standards as the U.S. economy braces for a potential recession. Even in a relatively healthy economy, credit delinquency rates have remained elevated over the past couple of years. Recently, overall credit card delinquency rates climbed to 3.2%, their highest level since 2012.
“Card issuers are just as worried about the economy, particularly as delinquent accounts and charge-offs are rising,” said Riley. “The concern is for those in higher risk segments, particularly with FICO scores below 720. And with pressure on government workers, there is a whole new segment to worry about.”
Worsening Expectations
Consumers’ year-ahead expectations regarding their households’ financial situations deteriorated considerably in February, per the Fed. Expectations for missing at least one debt payment over the next three months rose to its highest level since April 2020.
Beyond credit cards, other forms of credit are also being perceived as more daunting. The rejection rate for mortgage refinance applications has climbed to 41.8%, up from 26.7% just a year ago.
For auto loan applications, the perceived probability of rejection reached 33.5%. Last month, the New York Fed reported that the overall percentage of auto loans classified as delinquent rose to 3% in Q4, a figure considered a sign of financial strain for risky borrowers.
