The rate of Americans getting turned down for loans when they apply for credit has hit a five-year high, as tends to happen when credit tightens amid high interest rates and increased caution among the country's lenders.
According to the latest Fed survey, the rejection rate for loan applicants just hit 21.8% in the 12 months through June, while overall credit applications have declined to the lowest level since October 2020. Meanwhile, the reported probability that a loan will be rejected has shot up across all loan times.
The average reported probability that a loan application will be rejected increased sharply for all loan types. It rose to 30.7 percent for auto loans, 32.8 percent for credit cards, 42.4 percent for credit limit increase requests, 46.1 percent for mortgages, and 29.6 percent for mortgage refinance applications. The readings for auto loans, mortgages, and credit card limit increase requests are all new series highs. -NY Fed
In the previous Fed survey published in February - which occurred, as Bloomberg notes, before the collapse of Silicon Valley Bank and other US lenders, the rejection rate was 17.3%. Since then, the increase has been felt across all age groups, but as one might expect - most prevalent among those with credit scores below 680.
When it comes to auto loans, the rejection rate of 14.2% (up from 9.1%) exceeded the application rate for the first time since the survey began in 2013.
Of those auto-loan applicants, nearly 1/3 expected that their loan would be rejected - a record high. Those taking out mortgages, mortgages refis, or requesting increases in credit-card limits also expected to be rejected at increased rates.
Application rates for auto loans declined to 11.9%, while credit limit increase requests increased to 24.8% for credit cards, 6.5% for mortgages, and 5.3% for mortgage refis.
Also interesting is that applications for all types of credit have begun to spike among those with scores below 680.
Meanwhile, the median reported increase in monthly spending has fallen to 5.4%, vs. 7.1% in December - led by those who make less than $50,000 per year.