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Getting certain kinds of loans might be getting tougher for both consumers and businesses.
That’s the takeaway from a new Federal Reserve survey showing that some banks are pulling back after a period of more unrestrained lending. The Fed’s survey polled 73 domestic banks and 22 U.S. branches of foreign banks to see what changes they made in loan requirements in the fourth quarter of 2018, and what shifts they saw in demand for bank loans.
There was notable tightening of lending standards specifically for commercial real estate loans for businesses, and for credit card loans for consumers — with demand for both business loans and loans to households weakening, the Fed concluded from its survey.
Many loan officers cited uncertainty over economic conditions as a reason for stricter standards, as well as a decreased appetite for risk. And looking ahead to 2019, the loan officers indicated that they expect to continue seeing weakening demand and tightening of lending standards for loans in other categories, including noncomforming jumbo mortgages.
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In the past few months, financial executives and the Federal Reserve have expressed concerns about the U.S. economic outlook. Reports of a trend of weakening loan demand along with tightening lending standards could be interpreted as another sign of a coming downturn.
But economists in a recent Reuters report on the Fed survey point out that the “fundamentals for household spending power remain strong,” and U.S. job growth continues to surge.
A little more perspective: This survey was conducted Dec. 21 to Jan. 7, during the recent partial U.S. government shutdown — potentially adding to the uncertainty reflected in the survey results.
When banks tighten their lending standards, this can mean consumers could see things like higher interest rates, tougher collateral requirements, lower limits on the amount of money they can borrow, or in some cases a greater chance of getting rejected for a loan. Some banks have already tightened lending standards in certain areas, while others are expecting to do so soon.
Building and maintaining healthy credit is one way to help you prepare for and weather the market’s ups and downs. Here are a few tips for navigating a tightening credit market as you work to strengthen your credit profile.
- Consider a cosigner. If you need a loan but have less-than-perfect credit (or little to no credit history) having a friend or family member cosign a loan can help get you in the door and on the way to building up your credit profile.
- Apply for a secured credit card. Secured cards can be a great option for obtaining and building credit when you’re starting out or looking to heal your credit history. These cards are backed by cash deposits, so they don’t require the stellar credit that some credit cards do.
- Report rent payments to credit bureaus. One option to boost your credit health may be to look for services that report your monthly rent payments to the three major consumer credit bureaus.
- Focus on payment history. Payment history can have a big impact on your credit scores, so first things first: always be sure to pay your accounts on time.