Why are Mortages Harder to Obtain?
Mortgage loan availabilities have been decreasing since 2008, when the housing market crashed.
Mortgage lenders are now more careful about lending to people who might not be able to afford the monthly payments. This is because they want to avoid a situation where they have to foreclose on a property and take a loss on it
In addition, home prices have been going up for years now, which means that borrowers will need more money upfront for a down payment. The two factors mentioned above make mortgages even harder to get than before.
Why are Credit Cards Harder to Obtain?
The shift in the way lenders see people with blemishes on their credit report has been brought about by the emergence of technologies like FICO, which is a scoring system that is used to assess a person’s credit risk, the result: Credit Cards Harder to Obtain.
FICO scores are generated by using five factors that affect a person’s creditworthiness. These are:
1) Payment history (35% of the score)
2) Amounts owed (30% of the score)
3) Length of credit history (15% of the score)
4) New credit (10% of the score)
5) Types of credit used (10% of the score).
What Special Factors Enhance My Chances of Credit Card Approval?
For individuals managing debt and with good income should qualify for a credit card with a low interest rate, barring other negative factors. You should also make sure that the card does not have an annual fee and has a rewards program.
You can find out if you are eligible for a credit card by using the online eligibility calculator here:
The Economic Crisis Caused by the Pandemic
The economic crisis caused by the pandemic has driven interest rates to rock-bottom levels, meaning there has hardly been a better time to borrow. But with tens of millions of people out of work and coronavirus infections surging in many parts of the country, qualifying for a loan from mortgages to auto loans, has become more difficult, even for qualified borrowers. Right now, borrowers have been able to pause mortgages, halt student loan payments and delay paying their tax bills, while millions of households have received an extra $600 weekly in unemployment benefits. These forms of government support could be masking an underlying condition.
Due to borrowers being able to pause mortgages, halt student loan payments and delay paying their tax bills, it has become extremely difficult for lenders to get an accurate read on consumers financial status because of the aid the government is giving the people.
It makes it hard for a lender to understand what the consumer’s true state of credit quality is and their ability to pay back a loan. Being able to apply and get approved for a credit card really depends on your credit score. The higher your score is the less risk that borrower will look to the lender. The lower your credit score will indicate to the lender that you are a high risk of not being able to pay back the loan which will then limit your ability to apply and get approved for a new loan.
The type of industry your job is related to also influences your loan approval. Before the pandemic, banks would look at your employment status and approve you depending on the base salary of that career and how secure that job is for the borrower. But now after the pandemic, the banks are unable to see if employment status is secured or if your income will be stable. this has made lenders to become more cautious and tighten up the standards of the loan application process whether it be for a mortgage, car loan or credit cards.
Hourly employees are under the tightest microscope when it comes to getting a mortgage. Why? An hourly employee may have a set full-time schedule, which is ideal for lending purposes. However, if you work slightly less than a full-time schedule, with hours that fluctuate from week to week, this can muddy the waters. On the other hand, lenders love salaried employees the most because a set salary streamlines the income calculation in the qualifying process.
It’s not unusual for lenders to tighten the credit reins during a downturn, but the current situation has made it especially challenging for them to get an accurate read on a consumers financial status.
Lenders that have set aside billions of dollars for future defaults have also tightened their standards, often requiring higher credit scores, heftier down payments, and more documentation. Some, such as Wells Fargo and Chase, have temporarily eliminated home equity lines of credit, while Wells Fargo also stopped cash-out refinancing.
The statistics are showing a decline in credit card offers. Credit card companies, for example, mailed out 57 million offers to consumers in June, a historic low and down from 272 million a year earlier in 2019. This is about an 80% drop from 2019. With this pandemic happening all around the world, it is making creditors and lender’s think twice before handing out any new loans or credit cards.
Some creditors are even going far as closing some dormant accounts. If you have a credit card sitting around in a drawer somewhere or you haven’t used a credit card for a long time, those accounts are at a higher risk of being closed. On some of these dormant credit cards, credit lines of $10,000 might be lowered to $8,000 eventually.
For auto loans, borrowers with lower credit scores and thin credit histories face more rigorous requirements and less generous terms, including shorter loan periods. Interest rates for new and used vehicles remain low below 4 percent at many banks and credit unions — but only for more qualified borrowers.
If you are thinking about applying for a new mortgage or trying to get a new credit card or auto loan, remember that banks have now altered their ways on how they will approve new applications during the pandemic. Take the extra time to do your research on the creditor or lender and see if their application process has changed. Then make sure your credit score and report are in good position to get qualified.
