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Getting a credit card got tougher, Fed says

Jeremy Simon

The Federal Reserve thinks getting approved for a new credit card recently got tougher. But since communicating in easy-to-understand language just isn’t the central bank’s style, the Fed didn’t come out and say so in exactly those words.

In minutes released yesterday from its Dec. 11 policy setting meeting (there is always a delay between the announcement of a decision and the release of the meeting minutes), the Fed said that in November, “Delinquency rates on credit card loans, auto loans and other forms of consumer credit, while still moderate, had increased somewhat, particularly in areas hard hit by house price declines and mortgage defaults.” Translation? There was a slight rise in people who didn’t pay back their lenders, including credit card issuing banks, especially in places where the subprime crisis meant tapping a home equity line of credit for some cash was no longer an option.

The Federal Open Market Committee (the Fed group that decides on interest rates) added that as a result, it became harder to borrow money, saying: “Past and prospective losses appeared to be spurring lenders to tighten further the terms on new extensions of credit, not just in the troubled markets for nonconforming mortgages but, in some cases, for other forms of credit as well.” In other words, because they lost or expected to lose money on borrowers who were unable or unwilling to pay them back, lenders decided to be more careful about letting consumers — or even other banks — borrow more money.

In the past, consumers might have simply borrowed against the values of their homes, but that option has vanished for many. Instead, they have been forced to unholster their plastic when money is needed. That means credit card borrowing is getting more popular as a loan of last resort. Meanwhile, since they’ve recently been burned, credit card issuers are being more careful about who gets approved to borrow money. More people want a credit card, but plastic has become more difficult to come by.

To read more about how Federal Reserve interest rate decisions move credit card annual percentage rates, take a look at the Weekly Credit Card Rate Report.

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