America's craving for credit may get a little more difficult to satisfy, according to a survey of major banks conducted by the Federal Reserve. The results of the questionnaire given to senior loan officers at 72 domestic banks indicate these credit card lenders are looking at applicants with a more critical eye, particularly those whose credit score fall in the subprime category (defined by Experian, a leading consumer credit reporting agency, as a score below 670, though there's no hard-and-fast rule over what qualifies as subprime).
Who may feel the credit card crunch?
While the average credit score in America remains at 695, 25 points above what would classify someone as subprime, millennials and younger tend to score lower. Forty-one percent of consumers between the ages of 30 and 39 have scores of 621 or lower, and 38% of those 30 and under have scores falling in that same range. Any tightening of standards on the banks' part has the potential to disproportionately affect young people's ability to get a credit card just as they begin tackling some of life's bigger financial obligations, such as a paying down their student loans or take on a home mortgage.
If you fall into the category of someone with a subprime credit score, you don't need to panic quite yet. According to the survey results, a moderate net percentage of banks reported tightening standards on credit card loans over the past three months. And out of the 37 banks issuing credit cards surveyed, only 17 said lending standards to subprime applicants were on the tighter side of the spectrum (compared with standards since 2005). And while the survey didn't specifically quantify what stricter standards actually mean for the applicant—are they rejected entirely or just saddled with a higher interest rate or something else completely?—the fact that 83% of millennials use credit cards should be an assurance that many have no problem getting access to credit.
Better safe than sorry
That's not to say you shouldn’t take action if you have a low credit score. A low score can shut you out of loans, jobs, and, yes, apparently even true love. There's no easy shortcut to raising your score, but the following habits will put you on the right track:
- Pay Your Bills On Time: Being late on payments—whether it's a credit card statement, student loan or even a utility bill—damages your score more than anything. If a delinquent payment is reported by a lender to a credit agency (which in the case of a credit card usually means being 30 days late with meeting your financial obligation), the mark stays on your record for seven years. Pay your bills on time to avoid making a mistake that sticks with you for the better part of a decade.
- Keep Your Old Accounts The purpose of a credit score is that it gives lenders an easy way of assessing whether you will pay them back, therefore credit accounts (such as a credit card) with a longer history count more toward your score. Avoid closing an old account in favor of opening a new one if possible. You also want to avoid a pattern of frequently requesting new lines of credit, since lenders take it as a sign that you're in desperate financial straits.
- Get Some Help If you're fortunate to have a trusted friend or family (hey, Mom and Dad) with good credit, ask if you can sign on as an authorized user to their credit card. Your helper's credit account goes on your record, helping you on the path to achieving a good score of your own.