A new survey has revealed the steep plummet the consumer credit market took as the pandemic began, the Federal Reserve Bank of New York reported.
The Federal Reserve Bank of New York’s Center for Microeconomic Data released results on Monday (Dec. 21) from its latest Survey of Consumer Expectations (SCE) Credit Access Survey, which showed most credit applications and acceptance rates falling sharply after February this year.
The largest declines were from credit card and credit limit requests, with auto loans in second place.
Applications for mortgage refinances, however, were doing well throughout the year, with high credit score borrowers taking advantage of the lower mortgage rates, the report stated. As they looked to the future, households were generally lowering their expectations.
In addition, there was a new low for the ability of the average person to come up with $2,000 for an emergency, the report said.
Going further into the numbers, the report found that credit application rates over the past year had generally dropped by 11 percentage points, or 24 percent, going from 45.6 percent in February to 34.6 percent by October.
Rejection rates among applicants increased on average by 3.8 points, or 27 percent, during 2020, going from 14.2 percent in February to 18 percent by October, the report stated. The increase was largest for those with credit scores below 680 as the lending standards were tightened throughout the pandemic in order to curb the effects of loans that wouldn’t be paid back due to the economic crisis.
The pandemic almost instantly forced everyone to stay home, creating seismic shifts in how consumers spent money and what they bought, PYMNTS reported. Many people began to think long and hard about using credit when they were unsure if they’d have financial stability with the mass layoffs and virus shutdowns. Credit union service organization (CUSO) PSCU noted that there had been a 28.9 percent decrease of credit card spending in April as opposed to a year prior. Debit card spending, however, was up.