New FICO survey reveals a growing credit gap

After a summer of turbulent economic news, there's new evidence of a growing “credit gap” for U.S. consumers—in other words, available credit won’t keep up with consumer demand.  Results of a new FICO survey of bank risk professionals show that they expect credit availability to fall short of consumer demand through at least the end of 2010.

The survey, which we conducted in conjunction with PRMIA, found 73% of respondents expect the volume of credit applications to increase or remain steady over the next six months.  However, 46% expect approval criteria to get stricter and only 14% expect criteria to be loosened. We also found that 38% expect the approval rate for credit applications decline; only 25% expect a higher approval rate.

While this outlook isn’t as pessimistic as it was earlier this year, it’s clear that we haven’t reached a point of equilibrium between supply and demand.  Banks are still concerned about loss prevention.  That’s understandable considering personal bankruptcies are at their highest levels in five years, and the employment and housing sectors are struggling. Even with last week's report from the US Labor Department reflecting better-than-expected private sector job growth, the overall unemployment rate continues to cause very valid concerns for lenders, who will remain cautious about extending credit in the near term.

The survey results are consistent with other FICO Labs research. We also found evidence of a credit gap looking at credit data for the 12 months ending in April 2010.  During that time, the number of new credit cards opened by U.S. consumers dropped by 17.7% compared to the previous 12 months.  By contrast, the number of inquiries for new credit fell by only 3%, indicating that consumers were unable to access all the credit they were seeking.  Furthermore, the total amount of credit available on all U.S. consumer credit cards fell by 12.2% during the same period.

For those of you who want to dig into the specifics, read the detailed report of survey results.