Credit card applications remain strong despite rising interest rates, NY Fed says
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Credit card applications rose this year as Americans confront higher everyday expenses for necessities like food, gasoline and rent, according to a New York Federal Reserve Bank survey published on Monday.
The application rate for credit cards 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 application rate for credit cards was 26.7%, about 3.6 percentage points higher than last year.
Application rates rose for Americans with credit scores over 760 and fell for those with a score under 680.
Although fewer Americans anticipate needing to find $2,000 for an unexpected expense in the next month (32% vs 33.1% in 2021), more respondents said they would struggle to come up with the extra cash.
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Fan of plastic credit cards is in a woman's hand. (iStock / iStock)
"Looking ahead over the next 12 months, households anticipate they will be less likely to apply for an auto 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 in credit standards, reporting slightly lower average perceived likelihoods of a future credit application being rejected, conditional on applying over the next 12 months."
The rise in credit card applications is somewhat concerning, because interest rates are astronomically high right now. The average credit card APR, or annual percentage rate, set a new record high of 19.14% last week, according to a Bankrate.com database that goes back to 1985. The previous record was 19% in July 1991.
If people are carrying debt to compensate for steeper prices, they could end up paying more for items in the long run. For instance, if you owe $5,000 in debt – which the average American does – current APR levels would mean it would take about 191 months and $6,546 in interest to pay off the debt making the minimum payments.
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By comparison, the 16.3% average rate at the beginning of the year would mean paying about $5,517 in interest and getting out of debt after 185 months.
Shoppers are seen in 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," Bankrate.com analyst Ted Rossman said. "We’re talking three, four or even five times higher than most people are paying for 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 one week after the New York Fed reported that credit card balances climbed more than 15% from a year earlier, the largest annual jump in more than 20 years.
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"With prices more than 8% higher than they were a year ago, it is perhaps unsurprising that balances are increasing," the Fed researchers wrote in a blog post. "The real test, of course, will be to follow whether these borrowers will be able to continue to make the payments on their credit cards."
FOX Business' Edward Lawrence contributed to this report.