Banks tightened their lending standards and terms on credit cards in the latest quarter, more than for similar products like consumer loans and auto loans. Cardholders faced higher required minimum credit scores and experienced more difficulty getting loans approved if they didn’t already have qualifying credit scores.
The Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS), issued quarterly, reported that a significant share of banks had increased their minimum credit score requirements for credit card loans. Only a moderate number reported doing the same for other consumer loans. Terms and conditions were generally left unchanged on those loans, except that credit card limits also showed a tendency to be tightened.
Lenders also reported increasing interest rate spreads for all consumer loan categories. The current average credit card interest rate reached a record high of 20.75% in April, although it has slipped a bit to 20.66% in May, according to data from Bankrate.
Standards Continue to Rise
The Fed survey found that about 21% of banks overall, and 32% of large banks, said that in the past three months, their standards for approving credit card applications have “tightened somewhat.” This number peaked at 36% in the SLOOS report from July 2023, but has been falling ever since. The lowest that number has been in recent years was in July 2021, coming out of the pandemic, when 37% of banks reported their standards had loosened.
These standards have been tightening despite weaker demand for credit card loans and other consumer loans. As of Q2 2022, 26% of banks said that credit card demand had increased, but this figure has been dropping ever since.
Additionally, 22% of banks, and 23% of large banks, reduced their credit limits for credit cards in the past three months.
The survey also found that banks are raising the minimum credit scores required to get a credit card. Of those surveyed, 24% of banks, and 32% of large banks, reported stricter minimum credit score requirements.
