Fed Survey Shows Credit is More Accessible—For Now

Man sitting on couch applying for a credit card on his laptop.


It's gotten easier to sign up for a new credit card compared to early last year, but that doesn't mean banks trust consumers will always be able to pay up. 

U.S. financial institutions have loosened the tight grip they had on credit approval standards, while simultaneously expecting delinquency to increase as the year goes on, according to a Federal Reserve report Monday. That means the window of easy credit is likely to close, and soon.  

Consumer demand for credit is expected to rise as lenders become increasingly willing to approve new loans, particularly credit card accounts. But given an expected deterioration in loan quality, a reduction in their tolerance for risky customers and a bump in competition—on top of possible legislative or regulatory changes—they foresee climbing delinquency and charge-off rates (indicators that consumers are struggling to make credit card or loan payments) as the year goes on.

Banks hiked lending standards last year to avoid taking on financial risk while the economy was on rocky footing during the early months of the coronavirus pandemic—in the second quarter alone, gross domestic product plummeted over 31%. When lending standards are squeezed, it can be harder or more expensive for consumers to get approved for loans or new credit card accounts at a time when businesses are struggling to stay afloat as cities return to lockdown to prevent further spread of COVID-19.

The improvement in access to credit came in the fourth quarter. Banks were more willing to approve new credit card accounts, auto, and other consumer loans then compared to prior months, according to a survey of institutions for the Fed’s Senior Loan Officer Opinion Survey on Bank Lending Practices. 

In fact, nearly 15% of banks said they eased credit card account approval standards over the past three months, alongside almost 11% of auto lenders. That’s a stark change from July when 72% of surveyed banks reported they had made it harder to qualify for a new card, loan, or credit limit increase.

The quarterly Fed survey tracks consumer and business loans for 75 domestic banks and 22 U.S. branches and agencies of foreign banks. It monitors loan demand as well as banks’ willingness to extend consumers new loans or change terms on existing accounts.