Fact Checked

Banks tighten credit card, auto lending standards, with more expected in 2020

Close-up of man's hands holding a wallet open Image: Close-up of man's hands holding a wallet open

Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors' opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted. Read our Editorial Guidelines to learn more about our team.
Advertiser Disclosure

We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

Banks toughened their approval criteria for credit cards and auto loans during the fourth quarter of 2019, according to the Federal Reserve’s latest survey of senior loan officers. And they expect that tightening of lending standards to continue in 2020 — particularly for credit card, auto and most categories of business loans.

The banks that said they’ve already set tougher lending standards or expect to in 2020 told the Fed in its survey that they’re worried. Specifically …

  • They’re afraid borrowers won’t be able to repay loans.
  • They expect the value of collateral to drop.
  • They’re not willing to take on as much risk.

Lenders surveyed said they’re mostly concerned about loans and borrowers associated with credit scores that are below the “prime” score range — meaning below 660.

Want to know more?

What’s going on with bank lending standards?

As the chart above shows, banks have responded to economic conditions by either drastically tightening their credit card lending criteria (during a recession — Q1 2009), or loosening standards as the economy improves (Q1 2011).

In the third quarter of 2019, banks cited concerns about the economy as a big reason for tightening of some lending standards.

And fourth-quarter 2019 data from the Federal Reserve Bank of New York showed U.S. consumer delinquencies, or the percentage of people who couldn’t repay their loans, rose compared to the third quarter. In its latest notes from January, the Fed said there had been moderate economic growth and a strong labor market but some weakening in business investments and exports.

So it makes sense that banks are being more cautious.

What can you do?

Based on this latest survey from the Fed, getting a credit card or an auto loan in the near future might be tougher for some people.

If you’re thinking about applying for a credit card or auto loan in the next few months, take some time to …

  • Understand your credit scores. Learning what factors affect your credit scores can help you address your financial habits and work on building your credit.
  • Keep a budget. Understanding your income and debt by creating a budget may help you figure out how to reach your financial goals.