More Americans denied financial credit during pandemic
MONTGOMERY, Ala. (WSFA) -A new study shows a new way the pandemic impacts Americans’ finances.
Bankrate.com released research showing more people are being denied credit cards and loans since the pandemic began, mainly because their credit score was too low.
“This includes 32 percent of millennials, 22 percent of Gen Xers, and 11 percent of baby boomers. So it really is more of an issue for young adults,” explained Ted Rossman, credit card analyst for Bankrate.com. “I think it’s relevant that millennials were the most likely to have their income affected by the pandemic, it just means that it was that much harder to pay these bills on time and keep up with things. So it has largely been focused on young adults who’ve been getting rejected.”
These numbers, Rossman said, are significantly higher than what he saw pre-pandemic.
“Lenders are nervous right now. They’re worried about risk, they’re worried about the economy and jobs, and they’re afraid that their customers may not pay them back. And what’s happened is that, whereas a year ago, you could have gotten most credit cards with a score, let’s say 670 or above, that bar has now been raised. Now we’re looking at more like 725 or 730. So the rules have changed. It’s really not necessarily the applicant so much as it is the broader picture. It’s really a case where lenders just want the most creditworthy right now.” Rossman said more than 70 percent of credit card issuers tightened their lending standards in the second quarter of 2020. Zero percent eased their standards. Overall, 21 percent of Americans were told their credit score wasn’t good enough for the financing they requested.
“Credit cards were the most common rejection. I think that makes sense. Because this is unsecured debt, you’re not putting an asset on the line,” said Rossman. “we also saw other financial items on this list, everything from apartment rentals to mortgages, car loans. These are some of the other things that showed up in the survey. But credit cards by far were the hardest to access this year, mostly because of that unsecured nature.”
And Rossman believes this creates a ripple effect throughout the economy
“It takes credit to get credit. It’s kind of like applying for a job. Everybody wants you to have experience. But how do you get experience if nobody gives you your first break? The same thing happens with credit,” he explained. “I would stress that credit is really important for a lot of reasons, not just getting a loan, but also getting an apartment getting approved for a cellphone plan, utilities. You want to look into ways that you can build credit. So maybe it’s getting on a parent’s card as an authorized user, or maybe it’s signing up for a program like Experian boost or E-credible. They’re going to look at your utility payment history and give you credit for things like paying your cell phone, your power bill, your Netflix bill. Those haven’t traditionally counted, but there’s ways to incorporate those nowadays.”
That same research also found that more than half of millennials have taken steps to improve their credit score. Read the full results of the study here.
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