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By Suzanne Blake
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Consumers faced a record number of rejected credit applications last month, according to new data released by the New York Federal Reserve.
This surge in denials could indicate the banks' view of economic uncertainty as inflation and tariffs weigh on Americans, experts told Newsweek.
Why It Matters
Banks decide whether to approve or deny a loan based on several factors related to an applicant’s financial situation. However, worsened economic conditions can heighten the rejection rate as banks brace for more market volatility.
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What To Know
The New York Fed found that consumer credit application rejection rates hit a new high in October, just under one in four rejections.
This surge was attributed in part to auto loan rejections climbing high as well as subprime debt nonperformance, economist EJ Antoni wrote in a post to X.
**“**Higher rates pushed debt-to-income ratios over lender caps. Not because borrowers got riskier, but because affordability collapsed. Add in commercial real estate stress and supervisory pressure, and banks made a choice: protect capital over chase volume,” Michael Ryan, finance expert and founder of MichaelRyanMoney.com, told Newsweek.
Generally, banks have tightened their lending standards since emerging from the pandemic, pulling back on loans, according to Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast.
“They are protecting their balance sheets and are unwilling to go out on the credit quality,” Thompson told Newsweek.
Tariffs could likely only exacerbate the issue. Approaching the holiday season, a LendingTree study found that American consumers who purchased gifts last year would have faced $28.6 billion in additional costs for the same holiday purchases if 2025 tariffs were in place.
What People Are Saying
Ryan also told Newsweek: “This isn't a credit freeze; it's a credit filter. Strong borrowers sail through. Stretched borrowers hit the net. We're entering a two-speed cycle where scale wins and margins get squeezed.”
Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek: “With the job market growing tighter and missed debt payments growing higher, banks are naturally getting more cautious issuing new loans. We've seen in past cycles that banks overextending themselves has caused significant problems that accelerate other issues in economic downturns. The limiting of new loans is a valid precaution of our current financial landscape, one that is seeing more layoffs, more debt, and, sadly, more delinquencies in everything from auto loans to credit card bills. Unless you have a stellar record and fairly secure paycheck, getting a new loan is going to get harder.”
Thompson also told Newsweek: "Access to capital will become more difficult, but this will allow for more competition for lower credit quality lenders to enter the market and provide loans where the banks will not, albeit at much higher rates. Americans should expect lower access to capital as lending becomes more strict and much higher rates for those loans."
What Happens Next
Small businesses or those on the margin of loan limits should expect banks to believe their risk model more than their pitches, Ryan said.
**“**Come with collateral and coverage, or come back later,” Ryan said. “Underwriting didn't turn mean; arithmetic did. Higher rates turned yesterday's 'okay' DTI [debt-to-income ratio] into today's 'decline.' Banks aren't slamming the door. They're just raising the bar. In a high-rate world, the bar feels like a ceiling to many though.”
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