Banks tighten lending standards during pandemic
As the Federal Reserve encourages lending, it seems banks are making it harder for people to gain access to credit, even during a pandemic when demand for borrowing is low. According to a new CNBC report, the Federal Reserve recently conducted a survey and their results found lenders are “lowering credit limits and demanding” consumers have higher minimum credit scores.
The Fed’s survey also found lenders are concerned about the future of the economy and are afraid to take on risk. This is having a significant ripple effect on consumers who want to apply for loans and credit cards.
Lenders deny consumers loans
The New York Times recently reported people seeking mortgages and auto loans currently face “more rigorous requirements” and, if approved, are offered less generous terms. Lenders are aggressively seeking more details surrounding employment and income verification. For auto loans, shorter loan periods are being offered. Consumers with subprime credit scores, defined as having a score lower than 620, are having difficulty being approved for loans at all.
Credit card companies decrease offers
Credit card companies are also limiting credit by scaling back offers. The New York Times article reports Mintel, a research firm that tracks credit card offers, found credit card companies mailed out 57 million offers in June. As a comparison point, they mailed out 272 million to consumers a year earlier. Banks are also closing dormant credit accounts and lowering current credit limits on consumer accounts.
How consumers can improve the chances of getting a loan
People who want access to credit and loans can improve their chances of being approved by credit card companies and lenders by taking action to show lenders they can pay the money back.
- Pay credit card bills on or before due dates.
- Pay more than the minimum when possible to bring down the overall debt.
- Obtain an alternative credit score to demonstrate the ability to pay bills on time.
- Consider asking a co-signer who has strong credit to help.
- Look for errors on credit reports and, if found, have them removed.
No one knows what things will look like in the next few months, or even next year. Banks may reverse their position or they may continue to restrict lending. In the meantime, the key for consumers is to show lenders they are willing and able to repay any money they borrow.
Millions of people in the U.S. don’t qualify for a traditional credit score. In the current lending environment, this will make it extremely hard to borrow money. The good news is consumers don’t have to rely on traditional credit reports to better their credit standing. Statistics suggest 65% of lenders consider alternative credit scores when looking at applications. PRBC’s alternative credit scores help consumers who pay their routine bills on time, strengthen their credit standing.
To learn about how you can build your alternative credit score, contact PRBC today.