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During the third quarter, banks said they got stricter about who they’d approve for credit cards and some types of loans, according to the Federal Reserve’s latest survey of senior loan officers.
There are three key reasons why lenders said that they were less likely to approve applications.
- Worries about the economy
- Reduced tolerance for risk
- Growing concern about new borrowers’ ability to repay loans
Lenders were more likely to reject borrowers with FICO scores of 620 or lower than they were at the start of 2019. More surprising: Some loan officers were even growing more reluctant to approve credit card applications for folks with FICO scores of 680, which is considered “good” in a number of scoring models.
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This latest survey shows that banks may be more concerned now than they were in the recent past about the overall state of the U.S. economy and how much debt consumers are accumulating.
Lenders’ concern reflects the mixed economic outlook that’s emerged in 2019. On the one hand, notes from the Fed’s meeting in September cite a strong job market and a rise in economic activity. On the other hand, the Fed cut rates for a third time this year after that meeting in part because of uncertainty over global economic developments, such as trade disputes.
Even amid economic uncertainty, Americans continue to borrow. Credit card balances grew by $13 billion and auto loan debt grew by $18 billion in the third quarter of 2019, according to the latest New York Federal Reserve Household Debt and Credit Survey. What’s more, New York Fed data showed an increase in delinquency rates compared with the second quarter.
If lenders see warning signs about the overall economy or in the amount of debt consumers hold, it stands to reason that they’d be less likely to approve applications they might see as riskier — particularly those of “subprime” borrowers, which the Consumer Financial Protection Bureau defines at those with credit scores between 580 and 619.
If news that it could be getting harder to get approved for a credit card or loan worries you, there are a couple of things you can do.