Credit Is Hard to Get, But Fewer Consumers Want More

Report shows lower demand, approval rates for nearly all credit types in 2020

Man and woman review finances while sitting on a couch in front of a coffee table


It’s been tough to qualify for new (or additional) credit during the coronavirus pandemic, but consumers haven’t been asking for as much either, according to new survey findings from The Federal Reserve Bank of New York.

Both application and acceptance rates fell sharply after February, right around the time the coronavirus pandemic was officially declared and banks started pulling back on lending in the uncertain economic environment, according to the New York Fed’s latest credit access survey

The credit access survey is fielded every four months to gauge how actively consumers are seeking—and getting approved for—five different types of credit: auto loans, credit cards, credit card limit increases, mortgages, and mortgage refinancing. The latest report shows the cumulative toll the pandemic took on the credit market in 2020. 

Credit cards saw the sharpest drop in demand during the pandemic, which aligns with other reports indicating consumers relied more on debit cards and paid back some card debt during this mixed-up year. At the same time, the survey found mortgage refinancing requests soared as borrowers (particularly those with good credit scores) took advantage of historically low mortgage rates. 

Overall, consumers applied for less credit over the past 12 months compared to the prior year, regardless of credit score or age. The average credit application rate was 39.8% in 2020, compared to 45.8% in 2019. 

Banks Tighten Credit Card Approval Standards

Overall, the application rejection rate increased by 27% (3.8 percentage points) for all surveyed credit-seekers between February and October this year. Meanwhile, it became harder for consumers to get approved for new lines of credit, particularly for consumers with credit scores below 680, according to the survey.

While New York Fed’s survey polls households rather than lenders, its findings are consistent with bank reports of tougher lending standards throughout 2020. In fact, nearly 72% of credit-issuing banks reported tighter lending standards in Q3. That rate has since dropped to about 27%, but is still above pre-pandemic levels.

Rejection rates rose for most types of credit included in the report, but the increase was especially notable for credit cards, which shot up by 119% (11.6 percentage points) between February and October 2020. The current rejection rate—21.3%—is the highest it’s been since June 2018. Credit card limit increase requests were also rejected more often this year, according to the survey. 

Emergency Savings Thin While Credit Access Tightens

The New York Fed credit access survey also asked respondents how likely they would be able to come up with $2,000 for an unexpected expense. In October, Just under 66% of survey respondents said they would be able to come up with the money in a pinch, which is a new low for this report. For perspective, this rate was above 71% before the pandemic. 

“I think it’s clear that there is a segment of the population that is really distressed,” said Wilbert van der Klaauw, senior vice president in the research and statistics group at The Federal Reserve Bank of New York. "Generally, when savings are low, people might turn to credit to help cover expenses, but some may find that not to be a feasible option right now.”

About 7% of survey respondents said they were too discouraged to apply for new credit, despite needing it, in 2020, up from 6.4% in 2019.