Are you finding it increasingly challenging to secure a loan or financial product these days? Well, you’re not alone. According to a recent survey conducted by Bankrate, a staggering 50% of loan or financial product applicants have faced rejection since the Federal Reserve embarked on an aggressive interest rate hike campaign in March 2022. Credit card applications seem to be bearing the brunt of these rejections, with 14% of Americans reporting denials for new credit cards and another 6% facing refusal for balance transfer cards. But it doesn’t end there—people have also been turned down for credit limit increases, personal loans, car loans, car leases, insurance, and even mortgage loans.
The Federal Reserve policymakers have been on a rate-hiking spree for the past two years, implementing a total of 11 rate increases to combat inflation and stabilize the economy. This rapid escalation has seen interest rates jump from near-zero levels to over 5%, marking the swiftest tightening cycle since the 1980s. While the intention behind these hikes is noble, aiming to tame inflation, the side effects are hitting consumers hard. Higher interest rates translate to elevated costs on consumer and business loans, prompting companies to curtail spending, thus putting a damper on economic growth. Consequently, average 30-year mortgage rates have breached the 8% mark for the first time in decades, further exacerbating the financial strain on individuals.
In light of the soaring inflation and the financial headwinds posed by the interest rate hikes, an increasing number of Americans are resorting to taking up second jobs to cushion the impact. The strategy aims to offset the sting of high inflation by bolstering their income streams to cope with the rising costs of living. Sarah Foster, an analyst at Bankrate, notes that one way higher borrowing costs help combat inflation is by constricting the flow of credit to households and businesses. Consequently, the credit denial rates are notably higher for individuals with lower credit scores, with a whopping 73% of those with ‘Poor’ credit ratings facing rejection, compared to 63% with ‘Fair’ credit scores and 55% with ‘Good’ credit scores.
Foster emphasizes the pivotal role of maintaining a healthy credit score as a shield against the adverse impacts of rising interest rates. She highlights that focusing on improving and safeguarding one’s credit score could potentially wield more influence over an individual’s financial well-being than the fluctuations dictated by the Federal Reserve’s interest rate policies. As the financial landscape continues to evolve in response to the Fed’s maneuvers, staying vigilant and proactive in managing personal finances and creditworthiness emerges as a crucial strategy for weathering the financial storms ahead.
By
