Press Release

Increase in Unmet Credit Demand of U.S. Consumers; Consumers’ Outlook for Future Credit Experiences Deteriorates

March 20, 2017

NEW YORK – The Federal Reserve Bank of New York today released results from its February 2017 Survey of Consumer Expectations (SCE) Credit Access Survey, which provides information on consumers' experiences and expectations regarding credit demand and credit access. The SCE Credit Access Survey results are released every four months.

The release shows an increase in unmet credit demand of U.S. consumers compared to the October release. The proportion of “discouraged” consumers rose. Both application rates and rejection rates declined. Involuntary account closures also rose to their highest level since the series’ start. The expectations component of the survey also painted a subdued picture. The proportion of respondents likely to apply for at least one type of credit over the next 12 months decreased. Consumers were also generally more pessimistic of future approval rates. The release also includes two new series that measure the financial fragility of U.S. households—the probability of needing $2,000 for an unexpected expense in the next month and the probability of being able to come up with $2,000 if an unexpected need arose within the next month. The New York Fed started collecting data on these series beginning in 2015 and is releasing the underlying data for the first time in this release. There was a slight improvement in these measures.

Experiences

  • The share of respondents who were too discouraged to apply over the past 12 months despite needing credit rose to 7.1%—the highest level since June 2014—from 5.7% in October 2016. The proportion of respondents who applied and were granted credit over the last 12 months continued to decline, dropping to 31.5%, the lowest level since February 2015. The proportion of respondents who applied for credit and were rejected also dropped, from 9.9% in October to 8.5%.
  • Credit application rates declined from 42.3% in October to 39.9%, the lowest level since the series’ start in October 2013. The drop in application rates was broad-based across all credit score and age groups.
  • Rejection rates declined. The per applicant rejection rate dropped from 23.3% in October to 21.2%. The drop was driven by younger (age 40 or less) respondents and those with higher credit scores (scores of 680 or more). The per application rejection rate also declined, from 39.3% in October to 35.1%.
  • Turning to specific credit types (credit card, credit card limit increase, auto loan, mortgage and mortgage refinance):
    • Application rates declined for all credit types except for auto loans (which was unchanged). The declines were sizable in many cases. For example, the application rate for credit cards declined from 29.1% in October to 25.3%, their lowest level since October 2013. The decline was most notable for younger respondents.
    • Rejection rates declined for applications for credit cards (and limit increases), and for mortgage refinancing. On the other hand, rejection rates increased for home loan applications and auto loans.
  • Voluntary account closures declined slightly. On the other hand, involuntary (lender-initiated) account closures rose to 5.0%, their highest level since the series started in October 2013. The increase in involuntary closures was driven by respondents age 60 or less, and with credit scores of 760 or less.

Expectations

  • The proportion of respondents who report that they are likely to apply for at least one type of credit over the next 12 months decreased from 27.8% in October to 26.0%, its lowest level since the series started in October 2013. This decrease was most pronounced for respondents with the lowest credit scores (scores of less than 680). The proportion of these respondents reporting that they were likely to apply for credit dropped from 39.0% in October to 30.7%.
  • No clear patterns emerged in the changes in the average likelihood of applying for specific kinds of credit over the next 12 months, with the average likelihood increasing for some credit types and decreasing for others. The most notable change was a drop in the average likelihood of applying or a mortgage refinance, which dropped from 12.2% in October to 8.4%.
  • The average perceived likelihood of a credit application being rejected, conditional on applying, rose for all credit types except requests for credit card limit increases. The increase was most notable for mortgages applications, for which the expected rate of rejection rose from 34.2% in October to 41.4%, the highest reading that the series has registered to date.
  • There was little change in the financial fragility of U.S. households. The average probability of needing $2,000 for an unexpected expense in the next month was 32.5%, towards the middle of the narrow range (30.6% – 34.1%) in which it has prevailed since the series started in October 2015. The average probability of coming up with $2,000 (if an unexpected need arose within the next month) rose from 65.9% in October to 67.2%.

Detailed results are available here.

About the SCE Credit Access Survey

The SCE Credit Access Survey, fielded as part of the SCE (Survey of Consumer Expectations), provides information on consumers' experiences and expectations regarding credit demand and credit access. Every four months, SCE panelists are asked whether they applied for credit in the past 12 months, and the resulting outcomes. They are also asked about their expectations of applying for credit over the next twelve months, and the perceived likelihood of those applications being accepted. The Federal Reserve Bank of New York collects this information for five specific credit products: auto loans, credit cards, credit card limit increases, mortgages, and mortgage refinancing. Survey findings (in instances with sufficient sample sizes) are also presented separately by age and self-reported credit score subgroups.

More information about the SCE survey goals, design, and content can be found here.

Contact
Betsy Bourassa
(212) 720-6885
betsy.bourassa@ny.frb.org