Banks are becoming stingier when it comes to who they will extend credit to, which, according to Barclays, could be a sign that credit quality is deteriorating.
According to Barclays, citing the October Senior Loan Office Survey from the Federal Reserve, in October, banks increased their requirements for credit card and auto loans.
For credit cards, banks increased the minimum credit score requirements, and decreased the amount of times they granted loans to customers who did not meet their thresholds. For automotive loans, banks also increased their minimum credit score and decreased the number of loans granted to customers that don’t meet their credit score thresholds. For car buyers, they also increased the minimum percentage of outstanding balances required to be repaid each month.
While banks are becoming tighter with their money, consumer debt is ballooning as economic confidence is encouraging consumers to spend. In September, outstanding credit increased at an annual rate of 6.6%, the fastest clip of the year, according to Fed data.
While consumers are spending more, if they continue to max out their borrowing, their credit scores could suffer and if banks are tightening lending regulations, consumers may eventually have trouble securing a new credit card or auto loan.