Credit card issuers tighten standards
The task of obtaining a credit card just got tougher for people with marginal credit.
That’s the key conclusion that can be drawn from January’s survey of senior loan officers, released by the Federal Reserve Board Feb. 4.
Credit got tighter across the board as the impact of the subprime mortgage debacle filtered through the lending system. Hardest hit were home equity loans and mortgages, but seekers of credit cards are feeling the pinch, too.
“About 10 percent of respondents — up from about 5 percent in the October survey — reported that they had tightened their lending standards on credit card loans over the past three months,” the survey reported. “About 30 percent of respondents noted that they had reduced the extent to which such loans were granted to customers who did not meet credit-scoring thresholds; smaller net fractions also indicated an increase in minimum required credit scores and a reduction of credit limits on credit card loans.”
Banks tightened their standards for issuing cards by boosting the minimum credit score and by refusing to make exceptions for those who fail to meet their credit-score thresholds. Smaller numbers tightened up by boosting minimum payments.
Some consumers appear to have pulled in their horns, eschewing loans of all sorts. On net, the survey said, 35 percent of the bankers surveyed “indicated that they had experienced weaker demand for consumer loans of all types.”
If that’s the case, then the proposed federal economic stimulus package can’t come quickly enough. Consumer spending accounts for about two-thirds of all spending, and consumers can’t spend what they don’t have.
Whether it’s wise for individual consumers to borrow is another matter, but as we saw with how we spent money from the 2001 economic stimulus package, Americans as a whole are likely to end up spending what they have and then borrow to spend some more.