Applying for credit? Be prepared to be rejected

If you’re applying for credit for a car, or a card for new purchases, it may be tougher than you expect.

A Federal Reserve Bank of New York  survey found that the rejection rate for credit applicants increased to 21.8% in June, which is the highest it’s been in five years.

The rejection rate increase hit those with credit scores below 680 the most, according to the report. 

The rejection rate for auto loans increased to 14.2% from 9.1% in February. It also impacted a wide swath of sectors, with the rejection rate increasing for credit cards (21.5%), credit card limit increase requests (30.7%) mortgages (13.2%), and mortgage refinance applications (20.8%). 

The Federal Reserve has raised interest rates 11 times since March 2022. The higher interest rates are meant to control inflation. With the rate hikes, credit has tightened. 

Meanwhile, credit balances grew as interest rates rose. The Federal Reserve Bank of New York reported that credit card balances reached over $1 trillion for the first time, increasing by $45 million between the months of April and June.  

With stricter lending limits, some have stopped applying for loans. The application rate for any kind of credit over the past twelve months declined to 40.3% from 40.9% in February, its lowest rate since October 2020, according to the report.