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Have A ‘Fair’ Credit Score But Your Loan Got Denied? You’re Not Alone


Key Takeaways

  • Banks once again raised the bar for who they’ll lend money to and on what terms, according to an October survey, continuing a trend that’s persisted all year.
  • Banks rejected more applications for credit cards and car loans from people with 620-680 “fair”-rated credit scores.
  • The economy is sending mixed signals, stoking fears among loan officers that they won’t be paid back if there’s a downturn.
  • Tougher lending standards make life harder for borrowers, and could slow down the economy.

Amid a cloudy economic outlook, banks are getting choosier about who they lend money to and on what terms—with many lenders rejecting more credit applications for people with just okay credit scores.

In general, banks raised their standards for both businesses and individuals to get loans in late September and early October, according to data released Monday. They were less likely to approve credit applications from people with credit scores of 620-680—the range that’s considered “fair” by lenders, according to a survey of senior loan officers conducted by the Federal Reserve.

Banks also reported charging borrowers more interest above and beyond their own funding costs and lowered some credit limits among other measures.

Lenders have been growing more concerned that they wouldn’t be paid back amid an uncertain economic outlook. That could prove to be something of a self-fulfilling prophecy: the more banks curtail lending, the more the economy will be dragged down, economists said. 

“This report clearly shows that banks are tightening their lending screws,” Oren Klachkin, financial market economist for Nationwide, said in a commentary. “It’s undeniable that credit conditions affect economic activity … we think 2024 will prove to be the year that pain from the credit channel materially restricts spending and hiring.”

It was the third time in a row that the quarterly survey, which polled 62 U.S. banks and 19 foreign ones, showed banks toughening up their lending standards, making credit harder to come by. At the same time, the Federal Reserve’s campaign of anti-inflation interest rate hikes has pushed up borrowing costs for mortgages, credit cards, and all kinds of other loans tied to the benchmark fed funds rate.

The Fed has attempted to slow the economy and discourage borrowing and spending by raising borrowing costs, with the goal of bringing supply and demand back into balance and quashing the rapid inflation of the last two years.  

By some measures, the economy has withstood the hikes well, and with economic growth accelerating in recent months and thwarting many economists’ predictions that there would be a recession this year. Still, other indicators including surging interest rates, slowing factory orders, and growing consumer pessimism are flashing warning signs of a slowdown ahead. 

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.