The Alarming Rise in Credit Rejection Rates in 2018

By Chase Rimmer / December 18, 2018

According to a new report from the Federal Reserve Bank of New York, more consumers are being turned down for credit cards this year than in 2017. The most recent Survey of Consumer Expectations Credit Access, released on December 3rd of this year, shows that rejection rates for credit card applications are on the rise, with consumers being denied new credit accounts in record numbers. Credit limit increases are also making it more difficult for those with limited funds or a poor credit score to open a credit account.

On top of rising rejection rates, card issuers are also closing down more customer accounts now than in previous years. Though there was no significant increase in the number of people closing down their own borrowing accounts, more lenders are shutting down customer accounts in 2018 than in 2017, most commonly cards for retail stores. October saw 7.2% of respondents reporting an account closure by their lender, the highest rate since late 2013. This is 1.5% higher than the previous year and a full 3% higher than in 2016. Card issuers may close accounts due to inactivity, but accounts can also get shut down thanks to a change in a consumer’s financial standing.

Why Are Consumers Getting Denied?

There are a number of reasons that an applicant might be denied a credit account, from poor credit score to a lack of spending history. The recent rise in rejection rates is slightly more complex, however. Higher credit limits mean that many families who were previously eligible for a card no longer financially qualify. Additionally, an increase in application rates for credit cards is on the rise, making it more cost-prohibitive for lower-income families. This year, application rates for credit cards increased from just 26% in June to more than 30% in October.

Rising rejection rates and credit limits aren’t the only factors driving the decline in the number of U.S. credit card holders. Higher mortgage interest rates mean that fewer people are buying houses, which translates into lower overall credit application rates. This downward trend has forced lenders to be more selective in their application process, thus compounding the issue at hand.

The Impact of High Rejection Rates

As credit card rejection rates continue to rise, the buying power of the American population is expected to fall. This will have a widespread impact across all major industries, from the entertainment sector to the housing market. The trend is expected to hit lower- and middle-income families the hardest, making it more challenging to purchase big-ticket items such as a car or apartment without saving up for years ahead of time.

Despite this fact, the number of survey respondents who stated intent to apply for credit over the next year didn’t change much between 2017 and 2018. Many consumers remain optimistic that their application would be accepted in the coming year. If rejection rates drop in 2019, both lenders and borrowers will take less of a fiscal hit.

The Fed’s latest Survey of Consumer Expectations Credit Access offers an alarming glimpse into the recent trend of credit card rejection amongst lower income applicants. Rising credit limits, higher mortgage rates, and account closures are all affecting the financial landscape for millions of consumers. Fortunately, increasing rejection rates aren’t deterring families from applying for credit and working to rebuild a healthy economy.

About the author

Chase Rimmer

Chase is an expert in finance and uses his expertise and understanding of links between different financial products and life stages to analyze the latest finance news and products. When he's not writing you can find him in first class using his credit card points. Or staying at home with his cat if he's not saved enough yet!

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