Consumer Demand for Credit Cards On the Rise

Recent research from the New York Fed shows that U.S. consumers continually sought out more credit cards this year with a 27.1 percent credit card application rate for October, up from a 26.5 percent rate the year before.

Consumers with high credit scores have seen the highest demand for credit, as application rates for those with credit scores over 760 were above pre-pandemic levels while application rates for consumers with scores lower than 680 were below pre-pandemic levels.

A Bloomberg article noted that in an attempt to cool the economy and inflation, the Fed has raised interest rates, making it pricier for both businesses and consumers to borrow money. Policymakers’ benchmark interest rate rose from 3.75 percent to 4 percent in November, up from near zero levels in March.

The rate moves have affected the housing market, as the almost 7 percent mortgage rates are more than double the levels seen in January, ending the increase in refinancing that occurred after the Fed cut interest rates to boost the economy during the pandemic. Application rates for mortgage refinancing dropped to 8.9 percent in October this year from 21.4 percent in October 2021.

The report also showed more concern amongst consumers about their future expenses. The odds of being able to cover a $2,000 surprise expense fell to 67.5 percent, down from 68.2 percent in 2021. Consumers said they were less likely to apply for auto loans or mortgages in the next year, but said they would be more likely to apply for a credit card or a higher credit limit.