Credit card applications remain strong despite rising interest rates, says New York Fed

Credit card applications have surged this year as Americans face higher daily spending on necessities like food, gas and rent, according to a New York Federal Reserve survey released Monday.

The credit card request rate hit 27.1% in October, above last year’s level of 26.5% and the pre-pandemic reading of 26.3%. In 2022, the typical request rate for credit cards was 26.7%, about 3.6 percentage points higher than last year.

Application rates rose for Americans with credit scores above 760 and fell for those with scores below 680.

Although fewer Americans anticipate needing to come up with $2,000 for an unexpected expense next month (32% vs. 33.1% in 2021), more respondents said they would struggle to find the extra money .

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Fan of plastic credit cards is in a woman’s hand. (iStock/iStock)

“Looking to the next 12 months, households predict they will be less likely to apply for a car loan, mortgage or mortgage refinance loan, but report a higher average likelihood of applying for a credit card or credit card limit increase,” the New York Fed said in a statement. “Consumers expect some easing of credit standards, signaling slightly lower perceived probabilities that future credit demand be rejected, provided they apply within the next 12 months.”

The increase in credit card applications is of some concern, as interest rates are currently astronomically high. The average credit card APR, or annual percentage rate, set a new high of 19.14% last week, according to a Bankrate.com database that dates back to 1985. The previous high was 19% in July 1991.

If people go into debt to offset higher prices, they might end up paying more for items in the long run. For example, if you have $5,000 in debt – which the average American does – current levels of APR would mean that it would take approximately 191 months and $6,546 in interest to pay off the debt by making the minimum payments.

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By comparison, the average rate of 16.3% at the start of the year would mean paying about $5,517 in interest and getting out of debt after 185 months.

American grocers

Shoppers are seen inside a Kroger supermarket on October 14, 2022 in Atlanta, Georgia. (Photo by Elijah Nouvelage/AFP via Getty Images) ((Photo by Elijah Nouvelage/AFP via Getty Images) / Getty Images)

“Credit card rates are much higher than most other forms of debt,” said Bankrate.com analyst Ted Rossman. “We’re talking three, four, or even five times more than most people pay on mortgages, car loans, and student loans. Paying off your credit card debt should be a top priority, especially with interest rates at record highs.”

The survey comes a week after the New York Fed announced that credit card balances rose more than 15% from a year earlier, the biggest annual jump in more than 20 years.

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“With prices more than 8% higher than they were a year ago, it’s perhaps unsurprising that sales are on the rise,” the Fed researchers said. written in a blog post. “The real test, of course, will be whether these borrowers can continue to make payments on their credit cards.”

Edward Lawrence of FOX Business contributed to this report.

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