Half of loan or financial products applicants have had their applications denied since the Federal Reserve first started raising interest rates in March 2022, according to a new study by Bankrate.
Seven percent of applicants have been rejected for more than one financial product, the survey found.
Younger generations and parents of minors were more likely to be turned down for a loan or financial product. Sixty percent of millennials and 58 percent of Generation Zers were denied, while 62 percent of parents with children younger than 18 had at least one denial.
Moreover, the share of consumers who have experienced denials was substantial among those with lower credit scores. Seventy-three percent of consumers with “poor” credit and 63 percent with “fair” credit were more likely to be turned down for a loan.
The denials have affected most of the unsuccessful applicants’ lives. The Bankrate report discovered that 82 percent of U.S. residents who were denied a loan or financial product saw their finances negatively impacted in some way.
A Tighter Credit Climate
It has been two years since the U.S. central bank pulled the trigger on its first rate hike, lifting interest rates to their highest levels in more than two decades. The Fed’s tightening cycle has made borrowing more expensive—from credit cards to mortgages—at a time when many consumers are relying on these instruments to manage the inflationary environment.
“We can trace back this tighter credit environment to just how much interest rates have surged and how quickly,” Sarah Foster, an analyst at Bankrate, told The Epoch Times.
“When it becomes more expensive to finance a big-ticket purchase, lenders ultimately end up requiring more documentation, more income and, of course, a solid credit background with the goal being that they want to get paid back.”
Despite widespread concerns that the failures of Silicon Valley Bank and Signature Bank would trigger a severe credit crunch, the situation has improved since then, according to Ms. Foster.
Lenders not being as ebullient to approve credit applications might be “because of how much interest rates have surged,” she said.
Recent data from the Federal Reserve Bank National Financial Conditions Index have highlighted that financial conditions in traditional and unconventional banking systems have loosened notably since the second quarter of 2023.
This could be associated with growing expectations that the policymaking Federal Open Market Committee (FOMC) is anticipated to cut interest rates soon.
Although the futures market has pushed back its forecast for the Fed’s first pivot in the present tightening cycle, investors have become more optimistic that monetary authorities will initiate a quarter-point rate cut at the June meeting, according to the CME FedWatch Tool.
Appearing before the Senate Banking Committee on March 7, Fed Chair Jerome Powell told lawmakers that monetary policy officials are “not far” from cutting rates for the first time since the COVID-19 pandemic.
“We’re waiting to become more confident that inflation is moving sustainably at 2 percent. When we do get that confidence, and we’re not far from it, it’ll be appropriate to begin to dial back the level of restriction,” Mr. Powell said.
But while economists and market analysts anticipate an easing credit environment, consumers are not as convinced.
Credit Card Debt
The New York Fed recently confirmed that credit card debt reached a record high of $1.2 trillion to finish 2023.In addition, there is still an appetite for credit as total consumer credit increased nearly $20 billion in January, up from a $1.56 billion increase in December 2023, according to the Fed’s G.19 credit card numbers. Revolving credit (credit cards) jumped by $8.4 billion, and non-revolving credit (auto and student loans) advanced by $11.1 billion.
To kick off 2024, credit card debt rose by 6 percent year over year, WalletHub data confirmed. By the year’s end, it forecasts that credit card debt will soar by more than $120 billion, “putting us very close to a record on an inflation-adjusted basis.”
“We ended 2023 with a record amount of credit card debt in absolute terms, but we’re still 10 percent below the peak from 2008 when you adjust for inflation. Nevertheless, if we continue to indulge our urge to overspend, things could get rocky very quickly.”
Economists have debated whether households can still take on more debt, as many Americans are overleveraged and sinking further into delinquency territory.
However, Ms. Foster thinks that as long as Americans remain employed and receive stable paychecks, “the odds of being able to access credit ... will remain higher.”
In January, the Fed’s quarterly Senior Loan Officer Opinion Survey suggested a “modest net share of banks” expect loan demand to strengthen amid “an expected decline in interest rates.”
