Board of Governors of the Federal Reserve System

Banking, Credit Access, and Credit Usage

The survey finds that lacking a bank account or using alternative financial services is disproportionately prevalent both among lower-income respondents and among black and Hispanic respondents. The results also show that, while some people face difficulties getting approved when trying to access credit, a majority of adults seem to feel that credit would be available to them if they were to desire it. Additionally, the share who believe that credit is available to them has increased in recent years.

Unbanked and Underbanked

Based on the survey results, 16 million adults--or 7 percent of the overall adult population--are unbanked, meaning they do not have a checking, savings, or money market account. This represents a statistically insignificant decline from the 8 percent who were unbanked in the 2015 survey. Just over half of those who are unbanked have used some form of alternative financial service in the prior year--such as a check cashing service, money order, pawn shop loan, auto title loan, paycheck advance, or payday loan.²⁵

In addition to the 7 percent of adults who are unbanked, 19 percent are underbanked, defined as having a depository account but also using at least one alternative financial service in the prior year (figure 15). This compares to 21 percent who were underbanked in the 2015 survey.²⁶

Individuals' income and education, along with their race and ethnicity, are highly correlated with the likelihood that they are unbanked or underbanked. Fewer than 2 percent of adults whose income is over $40,000 lack access to a bank account, whereas one out of seven adults whose income is under that threshold have no bank account. Similarly, black and Hispanic adults are more than twice as likely as white adults to be unbanked, and those with a high school degree or less are more likely than those with a college degree to lack a bank account or to use alternative financial services (table 12). Each of these correlations persists when included in a regression along with other demographic characteristics including age, gender, marital status, urban/rural status, and region of the country.

Table 12. Banking status (by family income, education, and race/ethnicity)

Percent

The use of alternative financial services reflects that some individuals are turning to service providers other than traditional banks and credit unions for financial transactions. However, not all such transactions are identical. Seventy-eight percent of adults who used an alternative financial service used a money order. One-third used a check cashing service, and 23 percent used an alternative financial service to borrow money from a financial service provider (including pawn shop loans, payday loans, auto title loans, paycheck advances, and tax refund anticipation loans).

In addition to some unbanked individuals turning to alternative financial services for financial transactions, the lack of a bank account has a range of implications for how these individuals interact with the financial system in routine ways, including how they make purchases at local stores. When asked how they would typically make a $10 purchase at a local store, 33 percent of fully banked respondents indicate that they would use cash, whereas 36 percent would use a debit card and 29 percent would use a credit card (table 13). Among the unbanked, however, cash is the dominant form of payment for this type of purchase and would be used by 70 percent of these respondents. Within this population, 19 percent would use either a prepaid card or a debit card, and only 5 percent would use a credit card.²⁷

Table 13. How would you typically make a $10 purchase at a local store? (by banking status)

Percent

Credit Applications and Outcomes

Another aspect of consumer finance in the survey is the availability of credit. Forty percent of adults report that they or their family applied for some type of credit in the prior 12 months--which is up slightly from 39 percent in 2015 and is up further from 31 percent when this question was first asked in 2013. Among those who applied for credit, credit cards and auto loans were the most common application types, with 65 percent reporting that they applied for a credit card and 26 percent reporting that they applied for an auto loan (figure 16).

Twenty-three percent of respondents who applied for credit (9 percent of the entire population) were denied at least once over this period. However, some respondents who applied for credit also appear to be limited in their credit access without receiving an outright denial--either by being offered less credit than they desired or by putting off an additional credit application because they expected to be denied (table 14).²⁸ The frequencies with which those who applied for credit were denied, offered less credit, or put off applying for other forms of credit for fear of denial all declined relative to 2015.

Table 14. Experiences of adults who applied for credit (by survey year)

Percent

The rate at which individuals are denied or offered less credit than requested differs by the form of credit for which they applied. Credit cards and personal loans most frequently receive adverse outcomes. One-third of credit card applicants report that they were denied or offered less credit than requested on at least one credit card application. This compares to 18 percent of new mortgage applicants, 14 percent of auto loan applicants, and 10 percent of refinance applicants who were denied or offered less credit than requested on at least one loan application of the respective types (figure 17).

The rate of denial also differs by the race and ethnicity of the respondent and by their family income. Lower-income respondents are substantially more likely than those with higher incomes to be denied credit or be offered less than requested. Among individuals with incomes under $40,000 per year, 47 percent of those who applied for credit were either denied or offered less credit than requested, compared to 16 percent among those with an income of over $100,000 per year. Within each income bracket, black and Hispanic individuals also are more likely to report being denied credit or offered less than requested on a credit application (table 15).

Table 15. Credit applicants who were denied or offered less credit than requested (by family income and race/ethnicity)

Percent

Additional Demand for Credit and Perceived Credit Access

One limitation of tracking the demand for credit and credit availability based on applications submitted is that the majority of adults do not submit an application in any given year. Recognizing this, the survey also includes questions on credit availability that are asked of all respondents, including those who did not apply for credit.

When individuals who did not apply for credit are asked whether they desired credit but did not apply, 11 percent report that they had a desire for additional credit. Sixty percent of those who desired additional credit indicate that they did not apply because they expected to be turned down or denied.

An alternate way to consider perceived credit availability is to ask people whether they feel that their credit application would be approved if they were to apply today. This allows for an assessment of credit availability among the entire adult population rather than only among those who applied or expressed a desire for credit.

Most adults appear confident in their ability to obtain a credit card if they were to apply for one. Seventy-eight percent of adults are somewhat or very confident in their ability to obtain a credit card, including 59 percent who are very confident in their likelihood of approval. However, confidence in approval varies substantially by the income of respondents (table 16). Additionally, confidence differs based on individuals' race and ethnicity, although these confidence gaps may be at least partially attributable to other socioeconomic factors that also vary by race and income.²⁹ These differences in perceived credit access by income and by race and ethnicity are consistent with those seen in the 2014 and 2015 surveys, which asked similar questions about credit confidence.

Table 16. If you applied for a credit card today, how confident are you that your application would be approved? (by family income and race/ethnicity)

Percent

Credit Card Usage

In addition to exploring the availability of credit, the survey considers the ways in which individuals use their credit cards. Overall, 79 percent of respondents say that they have at least one credit card. Credit cards are disproportionately prevalent among those with higher levels of income, those with more education, and among non-Hispanic white adults (table 17). For example, 83 percent of white adults have at least one credit card, compared to 63 percent of black adults who have one.

Table 17. Ownership of at least one credit card (by family income, education, and race/ethnicity)

When asked how often they carry a balance on their card, 45 percent of those with a card report that they always paid their bill in full during the prior year, and 48 percent say that they carried a balance some, most, or all of the time (figure 18). Among the respondents who carried a balance at least once, approximately half indicate that they made only the minimum payment on their cards some or all of the time, and 8 percent made the minimum payment once. The remaining 41 percent say that they always paid more than the minimum payment.

The survey also asks respondents whether they currently have any outstanding credit card debt and the change in the balance over time. Slightly fewer than half of adults with a credit card--46 percent--report that they currently have outstanding credit card debt. Among those with credit card debt, 31 percent say that they now have more debt than they did a year earlier, whereas 30 percent report that they have less debt, and 39 percent report that it is about the same.

 

References

 

 25. The survey also asks about international remittances, but they are not included here as an alternative financial service. Return to text

 26. The fraction of adults who are underbanked is higher than that observed in the 2014 survey. However, a methodological change regarding who is asked this question between 2014 and 2015 means that the results are not directly comparable across those years. Return to text

 27. Prepaid cards and debit cards are listed separately in the question to respondents, and 13 percent of those without a bank account indicate that they would pay for a $10 purchase this way. This likely reflects that reloadable prepaid cards are often referred to as "prepaid debit cards" and "reloadable debit cards," so some respondents consider their prepaid card a debit card. As such, the two responses are reported together here. Return to text

 28. Respondents can select more than one adverse credit outcome or decision. Thirty-five percent of respondents report being denied outright, offered less credit than applied for, or having put off applying for additional credit due to a fear of denial. Return to text

 29. In a regression controlling for marital status, age, education, income, employment status, region, and urban/rural status, the difference in confidence between black and white adults remains significant, although the difference between white and Hispanic adults does not. Return to text