Board of Governors of the Federal Reserve System

Banking and Credit

Most adults had a bank account and were able to obtain credit from mainstream sources in 2019, but notable gaps in access to basic financial services still exist among minorities and those with low income. On average, individuals with capacity to borrow on a credit card were more prepared for financial disruptions.

Unbanked and Underbanked

Although the majority of U.S. adults had a bank account and relied on traditional banks or credit unions to meet their banking needs, gaps in banking access remained. Six percent of adults in 2019 did not have a checking, savings, or money market account (often referred to as the "unbanked"). Half of unbanked adults used some form of alternative financial service during 2019—such as a money order, check cashing service, pawn shop loan, auto title loan, payday loan, paycheck advance, or tax refund advance. In addition, 16 percent of adults were "underbanked": they had a bank account but also used an alternative financial service product (figure 18).²⁶ The remaining 79 percent of adults were fully banked, with a bank account and no use of alternative financial products.

The unbanked and underbanked were more likely to have low income, have less education, or be in a racial or ethnic minority group. Fourteen percent of those with incomes below $40,000 were unbanked, versus 1 percent of those with incomes over that threshold. Additionally, 14 percent of black adults and 10 percent of Hispanic adults were unbanked, versus 6 percent of adults overall (table 10).

Table 10. Banking status (by family income, education, and race/ethnicity)

Those who used alternative financial services (around one in five adults) may have needed or preferred to conduct certain financial transactions through providers other than traditional banks and credit unions. The vast majority (88 percent) of people using alternative financial services used transaction services such as purchasing a money order or cashing a check at a place other than a bank (table 11). Twenty-nine percent borrowed money using an alternative financial service product, including payday loans or paycheck advances, pawn shop or auto title loans, and tax refund advances.

Table 11. Forms of alternative financial services used

Credit Outcomes and Perceptions

The majority of U.S. adults who applied for credit in 2019 were able to obtain it, but a sizable share reported barriers or limitations to borrowing. During 2019, 41 percent of adults applied for some type of credit. Of those who applied for credit, 24 percent were denied at least once in the year before the survey, and 31 percent were either denied or offered less credit than they requested.

The incidence of denial or limitations on credit differed by the family income of the applicants and by their race and ethnicity. Lower-income individuals were substantially more likely to experience adverse outcomes with their credit applications than those with higher incomes. Among applicants with incomes under $40,000, 43 percent were denied credit, versus 9 percent of applicants with incomes over $100,000. Within each income bracket, black and Hispanic individuals were more likely to report an adverse credit outcome (table 12).

Table 12. Credit applicants with adverse credit outcomes (by family income and race/ethnicity)

Negative perceptions may be an additional barrier to credit. More than 1 in 10 adults put off at least one credit application because they thought that their application would be denied. This included 8 percent who applied for some credit, but opted against submitting additional applications because they thought they might be turned down, and 4 percent who desired credit but did not apply at all for fear of denial.

Although some people forgo credit applications because they expect a denial, most adults (80 percent) were somewhat or very confident that they could obtain a credit card if they were to apply for one (figure 19). Black and Hispanic adults were less confident that their credit card application would be approved, relative to adults overall.

While those with higher incomes were substantially more confident about being approved for credit than those with lower incomes, differences in confidence across racial and ethnic groups were evident at all income levels (table 13). However, these gaps may have been at least partially attributable to other factors related to creditworthiness that vary by race.²⁷

Table 13. Confidence that a credit card application would be approved (by family income and race/ethnicity)

Credit Cards

In people's financial lives, credit cards can serve different functions at different times. For people who pay their balances off each month, credit cards are mainly a form of payment convenience and can be thought of more or less the same as using cash. For those who carry a balance, however, use of the card represents borrowing and carries a cost in the interest payment and any fees that are incurred.

Overall, 83 percent of adults had at least one credit card, and the share with a credit card was higher among those with higher incomes, more education, or who are white (table 14). Among those with a card, 48 percent paid their credit card bill in full every month in the prior year. About one-quarter carried a balance once or some of the time in that year; the remaining one-quarter carried a balance most or all of the time (figure 20). The frequency of regular borrowing with credit cards during 2019 is similar to 2018.

Table 14. Has at least one credit card (by family income, education, and race/ethnicity)

On average, individuals with capacity to borrow on a credit card were more prepared for financial disruptions. Transactional users of credit cards who never carry a balance were much more likely to have said that they would pay an unexpected $400 expense with cash or its equivalent, compared to those who carry a balance most or all of the time or those who do not have a credit card (table 15). Similarly, transactional users were more likely to have a three-month rainy day savings fund and to express confidence that their application for a credit card would be approved.

Table 15. Financial preparedness measures among adults (by credit card use)

 

References

 

 26. The FDIC National Survey of Unbanked and Underbanked Households in 2017 found that a similar 6.5 percent of households were unbanked and 18.7 percent of households were underbanked. However, the FDIC uses a broader underbanked definition, which includes international remittances and rent-to-own services as alternative financial services. See Federal Deposit Insurance Corporation, 2017 FDIC National Survey of Unbanked and Underbanked Households (Washington: Federal Deposit Insurance Corporation, October 2018), https://www.economicinclusion.gov/surveys/2017household/. Return to text

 27. In a regression including income, age, presence of a credit card and card payment behavior, and self-reported credit score, the difference in confidence between black and white adults narrows but remains significant. The gap between Hispanic and white adults is largely accounted for by these other factors. Return to text