Americans are feeling better about their chances of getting a loan — here’s why they're feeling so good

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Americans are more confident about their ability to take out credit than they were a year ago, according to the latest Survey of Consumer Expectations from the New York Federal Reserve.

A year ago, more consumers believed they would have a much harder time getting access to credit than they currently do in the upcoming year, according to the Fed’s consumer expectations survey. In January last year, nearly 6% of the 1,300 people surveyed indicated that they believed they would have a much harder time getting credit this year, and under 5% said they would have a much harder time getting credit in the upcoming year.

Additionally, the percentage of people who found it easier to access credit this year compared to last increased by 6%, the survey published on Monday shows. Peoples’ perceived access to credit is important for banks because it could mean that fewer people apply for loans and credit cards, thinking they will be denied.

More than 20 million Americans have taken out personal loans over the last year, which is double the number of people in 2012, according to studies by the major credit bureaus. The average loan balance is $16,259, Experian EXPGY, +1.29%  said in one 2019 study. U.S. consumer debt has reached record levels, currently nearing $14 trillion in the third quarter of 2019, up 0.7% or $1.3 trillion on the previous quarter, according to the New York Federal Reserve.

“In the past, personal loans were often considered a last resort for people trying to escape debt. But since financial technology firms, or fintechs, began flooding the market in recent years with unsecured personal loan offers, personal loan balances have surged,” Experian added. “Fintech loans can be easier to qualify for than those from traditional banks and credit unions, and consumers looking to make big purchases or consolidate debt are turning to them in record numbers.

Why people are feeling more confident

One factor that could be driving that confidence: Americans’ record high credit scores. Average credit scores of Americans are at an all-time high of 703.

The low-interest-rate environment may be another reason why consumers’ perceived access to credit improved this year. As borrowing money has become cheaper, consumers may have noticed that banks seem more willing to extend credit to borrowers as they seek to maintain their bottom lines.

“With the Federal Reserve acting to reduce interest rates last year and continuing to signal that it will do what it can to keep the economic expansion going, consumers have a sense that credit is easier to access,” Mark Hamrick, senior economic analyst at personal-finance site said.

‘It’s still a good time to sign up for a credit card and banks are still very happily lending — just not quite as eagerly as they did three or four years ago.’

—Matt Schulz, chief industry analyst at

“This also occurs within the context of solid consumer confidence more broadly and the rally in the stock market.”

In 2019, the Federal Reserve lowered its benchmark interest rate three times — each time by 25 basis points. When the Fed lowers rates, banks often follow and lower the interest rates on their credit cards, too, making it less expensive for consumers to pay off debts they have incurred.

By contrast in 2018, the Fed raised interest rates four times — also by 25 basis points.

Just because there is increased demand for credit as a result of the lower interest rates “doesn’t mean that the banks are always willing to play along,” said Matt Schulz, chief industry analyst at In the past couple of years banks have tightened their credit standards, which makes it harder for more people to get a new credit card.

“It’s still a good time to sign up for a credit card and banks are still very happily lending — just not quite as eagerly as they did three or four years ago.”

In the Fed’s most recent decision, Chairman Jerome Powell left rates unchanged citing muted concerns about the U.S. economic outlook.

One common complaint among consumers

However, Americans’ confidence about credit could shift once FICO’s new methodology for calculating credit scores, announced last month, becomes effective.

At the same time, monetary policy makers, led by Powell, “believe monetary policy is where it needs to be with the economy in a good place,” Hamrick said. “This is why no rate increases are seen in the coming months, making for a supportive environment for borrowers.”

Americans’ financial satisfaction recently hit a 10-year high, according to an analysis by the American Institute of CPAs (AICPA), a member organization of certified public accountants. AICPA calculates the index by measuring financial “pleasure” — including job openings, stock market performance and real home equity — against “pain” from loan delinquencies, underemployment, inflation and personal taxes.

Taxes were the only measure of financial pain that increased over the last decade, even as the overall “pain” index dropped.

Meanwhile, a recent Gallup poll found that 59% of Americans say they’re better off financially than they were a year ago. But there’s a partisan divide over people’s financial optimism. Some 83% of Republicans say their personal financial situation will be better in a year, compared with 60% of Democrats, Gallup found.

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