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Credit Card Approvals Tighten

Posted by: Henry Baum | Jun 13,2008


It’s pretty much conventional wisdom now that it’s harder to get a loan.  Banks and other lenders reeling from losses in the mortgage industry are less willing to take a chance on new borrowers, even if the borrower has a decent credit rating.  As a result, these same borrowers are looking towards credit cards as a loan source, as credit cards are easier to secure.  

Because credit cards have such a higher interest rate than other types of loans, credit card companies are more willing to take chances on high-risk borrowers.  However, this is becoming less true, as credit card issuers are less willing to offer credit cards to borrowers with bad credit and to borrowers overall. 

Credit Card Survey

In a survey of credit card issuers, it has been shown that the number of lenders have tightened restrictions on credit card applications from 5% in 2007 to 35% in 2008.  That suggests that it’s not only credit card companies that offer bad-credit credit cards, but lenders of every stripe that are tightening lending standards.  

In one sense, this can be seen as good news, though that’s a tough pill to swallow if you’ve been denied a credit card.  The major criticism leveled at the credit industry after the subprime mortgage crisis is that lending practices had become far too lax.  Mortgage lenders were giving out mortgages to high-risk borrowers without taking into account the long-term effects.

So the new lending standards are not only a result of lenders trying to save money during the credit crisis, but an overall “culture of responsibility” for the lending industry.  Compared to past lending standards, in which lending standards were so liberal as to be economically dangerous, these new lending restrictions can be seen as more reasonable.  That said, the credit crisis is contributing to the new lending restrictions considerably, and once the credit crisis is in the rearview mirror, some of these restrictions will be lifted again.   

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