It has become more difficult for Americans to take out a loan or get approved for a credit card as financial companies have tightened their lending standards.
According to the latest data from the New York Federal Reserve, the overall denial rate for all types of loans — including credit cards, auto loans and mortgages — increased to nearly 22% at the end of June.
This is the highest level since June 2018 – with people with a credit score below 680 most affected, the data shows.
The auto loan denial rate increased to 14.2 percent from 9.1 percent in February, a new record.
It also increased for credit cards, credit card limit increase requests, mortgages and mortgage refinancing requests to 21.5 percent, 30.7 percent, 13.2 percent and 20.8 percent, respectively.
The overall rejection rate for all types of loans – including credit cards, auto loans and mortgages – increased to nearly 22% at the end of June – the increase being the highest among those with credit score is less than 680.
Following a series of bank failures earlier this year and a series of interest rate hikes to combat inflation, lenders have less money to hand out, making them more strict and choosy with borrowers.
A Federal Reserve investigation senior lending executives said in July: “During the second quarter, significant net shares of banks reported tightening standards for credit card and other consumer loans. »
Randall Watsek, financial advisor at investment bank Raymond James, said Money: “When you have less money, you focus on the highest quality people you can find with the limited resources you have. »
Experts warn that this means it’s more important than ever to make sure you have a good credit score, as lenders are more likely to reject applications outright, increase minimum credit score requirements or to charge higher interest.
Your FICO The score, which lenders and potential creditors such as landlords use to judge your ability to manage credit, can range between 300 and 850.
According to the credit reporting company, anything below 629 is considered “poor,” while anything above 720 is “excellent.”
Ted Rossman, senior industry analyst at The bank ratetold DailyMail.com it would typically score 740 for the best terms on most financial products – and a score of 780 for the best mortgage terms.
How to increase your credit score
To improve your score, he recommends “paying your bills on time, keeping your debt low, and showing that you can successfully manage different types of credit over the long term.”
He highlighted how your score will have a substantial impact on the terms you can get for financial products.
For example, if you have a credit score of 675 and qualify for a $300,000, 30-year fixed mortgage with an interest rate of 7.646%, you’ll pay $2,128 per month, according to the latest figures from FICO.
According to credit scoring company FICO, anything below 629 is considered “poor,” while anything above 720 is “excellent.”
Ted Rossman, senior industry analyst at Bankrate, recommends showing that you can successfully manage different types of credit over the long term to improve your score.
However, if you have a score of 780 and qualify for a 30-year contract at 7.033%, you’ll pay $2,003 per month.
“Over 30 years, that’s a difference of $45,000, which is a good way to illustrate the importance of a good credit score,” he said.
He added that you should consider your credit utilization rate as a way to improve your score.
This is the credit you use divided by the credit you have – and it’s especially important when it comes to credit cards and other revolving loans.
For example, if you have a $5,000 limit on a credit card and you charge $2,000 on it, your credit utilization rate is 40%.
“Credit utilization is something you can change pretty quickly,” Rossman said. “This is usually mentioned in your statement, which many people don’t realize.
“Even if you pay in full each month and avoid interest, you can have a high utilization rate if you use the card a lot. Say you go on vacation or renovate your home and spend $4,000, you’ve used 80% of your credit that month. This looks risky.
Financial experts generally recommend keeping your credit utilization ratio below 30%, while FICO says most people with the best credit scores keep it below 10%, according to Rossman.
“My advice would be to consider making an extra payment or two mid-month, or perhaps requesting a higher credit limit. These are two ways to reduce this ratio.
Many major credit card companies and some auto loan companies have started reporting credit scores on your monthly statement.
Otherwise, you can access your score through an online credit scoring service or purchase it directly from one of the credit reporting companies, including FICO.
Be aware that while some credit scoring services may advertise a “free” score, this may require you to sign up for a credit monitoring service with a monthly subscription fee.
According to Experian, the average American has a credit score of 714 – although this varies from state to state.