In recent years, millions of individuals have increasingly relied on credit as a means to navigate challenging economic circumstances. This reliance extends to essential purchases that many consider routine, such as acquiring a car or a home. However, the landscape of credit approval has shifted dramatically, culminating in an unprecedented rise in credit rejections.
Recent reports from the Federal Reserve Bank of New York highlight a troubling trend: securing credit approval has become more difficult than ever. This surge in rejections is not merely a temporary blip; it marks the highest rate observed since the New York Fed began conducting surveys on credit access in 2013. This period closely followed the fallout from the Great Recession, during which millions of people encountered significant financial hardships.
The increasing obstacles to obtaining credit reflect a broader economic climate characterized by stricter lending practices and heightened scrutiny by financial institutions. As a result, those who once relied on credit to manage day-to-day expenses or major life purchases may now find themselves in a precarious position, unable to access the funds they need to advance their personal and financial goals.
Dependence on credit use
To illustrate the significance of credit in today's economy, it's helpful to examine federal government data presented in a graph. This visualization reveals the trends in median household income growth, adjusted for inflation, alongside the rising costs of living over a given timeframe. The comparison highlights the increasing disparity between household earnings and the expenses families face, shedding light on the crucial role that credit plays in managing financial stability.
Between 1984 and 2024, the median household income has seen a significant increase of 40%. While this growth may seem encouraging, it stands in stark contrast to the staggering impact of inflation on the value of the dollar. To put it into perspective, by 2024, $3 is required to match the purchasing power of what $1 could buy back in 1984. This substantial decline in the dollar's value raises the pressing question: how do families navigate the widening gap between income growth and inflation?
For many, particularly those at the lower end of the economic spectrum, the answer often lies in reliance on government assistance programs. Crucial support systems such as the Earned Income Tax Credit (EITC), the Supplemental Nutrition Assistance Program (SNAP) (formerly known as food stamps), and other welfare programs are lifelines for individuals and families who need help compensating for stagnant wages and rising living costs. These programs aim to alleviate some of the financial pressure faced by those who earn low to moderate incomes.
However, as we ascend the socioeconomic ladder, the situation shifts dramatically. At higher income levels, individuals may encounter a more competitive landscape where financial survival depends on personal efforts, skills, and sometimes, inherited wealth. For countless people residing within the vast and diverse middle class, the gap between income and expenses is bridged through extensive reliance on credit. For decades, the use of revolving credit, such as credit cards, has become a common strategy to manage daily expenses, fund unexpected costs, and maintain a certain standard of living.
The trend of increasing credit card usage captures how individuals have adjusted to economic pressures over time. The accompanying graph illustrates this rising reliance on credit as households navigate their financial realities, highlighting a critical aspect of contemporary economic life.
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