October 2017 Consumers Report Fewer Credit Application Rejections

From the New York Fed

The Federal Reserve Bank of New York’s Center for Microeconomic Data today released results from its October 2017 Survey of Consumer Expectations (SCE) Credit Access Survey, which is fielded every four months.

Consumers’ recent experiences were positive, with declines in both rejection rates for credit applications over the past 12 months and in the share of “discouraged” credit applicants. The share of “discouraged” credit applicants reached a new series’ low.

Regarding consumers’ expectations about the future, the proportion of respondents who reported they are likely to apply for credit over the next 12 months was essentially unchanged. Compared to the past few years, consumers showed greater optimism about the likelihood of future credit applications being accepted. Consumers’ financial fragility improved, continuing a slow overall upward trend seen since June 2016.

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The main findings from the survey are:

Experiences

The share of respondents who were too discouraged to apply for credit over the past 12 months despite needing it, decreased again to 4.9% in October, after declining from 7.1% in February and 5.1% in June. The October reading is the lowest since the start of the Credit Access Survey in October 2013. The proportion of respondents who applied and were granted credit over the last 12 months increased from 32.8% in June to 34.0%, while the proportion of respondents who applied for credit and were rejected dropped from 10.8% in June to 8.0%, tying the previous low in June 2016.

Application rates declined slightly from 43.6% in June to 42.0%, equal to its average over the past 3 years.

Rejection rates declined. Both the per applicant rejection rate and the per application rejection rate decreased from their June readings of 24.8% and 37.7%, to 19.1% and 30.7%, respectively, with both rates approaching series’ lows. The decreases in both rates were driven primarily by respondents under age 60, and those with lower (under 680) and higher (above 760) credit scores.

Turning to specific credit types (credit card, credit card limit increase, auto loan, mortgage and mortgage refinance):

Application rates decreased for all loan types, except mortgage loans. The application rate for credit cards decreased from 29.5% in June to 28.2%. Similarly, application rates for auto loans, credit card limit increases and mortgage refinancing fell from 16.6%, 12.2% and 10.5% in June to 15.8%, 12.0% and 8.0%, respectively. Mortgage loan application rates increased from 7.7% in June to 9.2%. The increase was driven by middle-age (over 40 and under 60) and middle credit score (over 680 and under 760) respondents.
Rejection rates declined for all credit types.

Voluntary and involuntary (lender-initiated) account closures declined to 13.0% and 5.0%, respectively.