Press Release

Credit Access Survey Shows Credit Tightening as Application Rejection Rates and Account Closings Increase in 2018

December 03, 2018

NEW YORK – The Federal Reserve Bank of New York’s Center for Microeconomic Data today released results from its October 2018 Survey of Consumer Expectations (SCE) Credit Access Survey,which provides information on consumers' experiences with and expectations about credit demand and credit access. The survey is fielded every four months (it was previously fielded in June), and a press release summarizing trends from the past year is issued annually.

The latest Credit Access Survey shows a decline in application rates for credit over the previous twelve months, and an increase in rejection rates in 2018, compared to 2017. Consistent with an expected decline in demand due to higher mortgage interest rates, the share of respondents who applied for a mortgage or mortgage refinance during the past year was lower in 2018 than in 2017.  Rejection rates reported during 2018 rose for credit card applications and for credit card limit extension requests, and also increased notably for mortgage refinance applications.

While there was no appreciable change in reported borrower-initiated account closings between 2017 and 2018, there was an increase in the proportion of respondents who reported that a lender closed one of their accounts (most commonly a credit or store retail card), during the past twelve months. In October, 7.2% of those surveyed reported such a lender-initiated event, compared to 5.7% a year earlier in October 2017 and 4.2% in October 2016. In fact, this is the highest rate reported since the start of our survey in October 2013.

Regarding consumers’ expectations about the future, the proportion of respondents who reported that they are somewhat or very likely to apply for credit over the next twelve months, remained stable overall between 2017 and 2018, with the exception of mortgage refinances for which fewer respondents expect to apply, when compared to expectations reported in 2017, and even more so compared to 2016. Survey participants also expressed more pessimism in 2018 about the chances of future credit card limit increase requests being accepted compared to 2017, while they are somewhat more optimistic about future mortgage application approvals.

The New York Fed also issued an accompanying blog post that takes a closer look at the recent tightening in consumer credit.

More specific findings from the October 2018 Survey:

Experiences

  • The share of respondents who were too discouraged to apply for credit over the past 12 months despite needing it, increased slightly to 5.9% in October, from 5.7% in June, remaining close to its reading of 5.7% in October 2017. The proportion of respondents who applied and were granted credit over the last 12 months increased from 33.6% in June to 37.7%, but remains below its October 2017 level of 41.3%. The proportion of respondents who applied for credit and were rejected, increased again to 10.2% in October, from 9.4% in June and 7.6% in February.
  • Application rates increased from 43.0% in June to 47.8% but remain below the October 2017 reading of 49.0%. This is also the case for 2018 application rates overall which trail those for 2017.
  • Rejection rates declined slightly from 21.9% in June to 21.2% but remain well above the October 2017 reading of 15.7% and its trailing two-year average of 18.5%. Rejection rates reported in 2018 overall were higher than those reported in 2017. The increase was driven by younger (age 40 and below) respondents.
  • Turning to specific credit types (credit card, credit card limit increase, auto loan, mortgage and mortgage refinance):
    • Application rates increased in October for all loan types from their June readings, except mortgage loans. The application rate for credit cards increased from 26.0% in June to 30.6%. Similarly, application rates for auto loans, credit card limit increases and mortgage refinancing rose from 14.0%, 13.2% and 7.5% in June to 15.6%, 13.5% and 9.2%, respectively. Mortgage loan application rates decreased from 7.1% in June to 6.7%. For 2018 overall, mortgage and mortgage refinance application rates were lower, and credit card limit extension applications were higher compared to 2017, while credit card and auto loan application rates were relatively unchanged.
    • Rejection rates declined in October from their June readings for all credit types except mortgage loans and mortgage refinance applications. The October rejection rate on mortgage refinance applications of 34.3% is the highest reading since the start of the SCE Credit Access Survey in October 2013. For 2018 overall, rejection rates for credit cards and credit card limit extensions and for mortgage refinancing exceeded those in 2017, while those for auto loans and mortgage applications were stable.
  • Voluntary and involuntary (lender-initiated) account closures increased to 15.7% and 7.2%, respectively. While the former has been relatively stable over the past few years, the latter has been increasing steadily over the past few years, from 4.2% in October 2016 and 5.7% in October 2017.

Expectations

  • Subjective financial fragility of U.S. households improved. While the average probability of needing $2,000 for an unexpected expense in the next month decreased from 33.6% in June to 32.3% in October, the average probability of being able to come up with $2,000 if an unexpected need arose within the next month increased from 66.9% in June to 68.3%. For 2018 overall, reported average likelihoods of needing and being able to come up with $2,000 were largely comparable to those for 2017.
  • The proportion of respondents who report they are likely to apply for at least one type of credit over the next 12 months increased from 26.5% in June to 27.5% in October, its highest reading since October 2016. However 2018 responses overall show little change in expectations for applying over the next 12 months compared to 2017 responses. The average likelihood of applying for specific kinds of credit over the next 12 months was largely stable for all credit types, with the largest change being a decrease in the average likelihood of applying for an auto loan from 11.3% in June to 10.5%. For 2018 overall, the average likelihood of applying for different types of credit were comparable to those reported in 2017 except for mortgage refinance applications. For mortgage refinance applications, 2018 respondents reported a 6.8% likelihood of applying over the next 12 months, compared to 8.2% for 2017 respondents.
  • The average perceived likelihood of a credit application being rejected, conditional on applying over the next 12 months, declined in October from the June readings for all credit types except for mortgage loans and mortgage refinance applications. For 2018 overall, expectations of credit application rejections were slightly lower, compared to 2017, with the exception of credit card limit extension requests for which we see an increase in the average rejection probability.

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 12 months and the perceived likelihood of those applications being accepted. This information is collected 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. A press release summarizing trends from the past year is issued annually.

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