Board of Governors of the Federal Reserve System

Banking and Credit

Access to banking and credit services from traditional financial-service providers, like banks and credit unions, can be important for people's financial well-being. Most adults had a bank account and were able to obtain credit from mainstream sources in 2020, but notable gaps in access to basic financial services still exist among minorities and those with low income.

In 2020, credit card borrowers reduced their outstanding balances, and fewer adults used their credit cards to carry balances from one month to the next. Additionally, the share of adults applying for credit declined, as did the share of adults using alternative financial services. However, despite the overall decline in credit card borrowing, credit card balances increased for people who were laid off in the prior 12 months.

Unbanked and Underbanked

Most adults in the United States (81 percent) were "fully banked," meaning that they had a bank account and, in the past 12 months, did not use any of the alternative financial services asked about in the survey. Such services include money orders, check cashing services, payday loans or payday advances, pawn shop loans, auto title loans, or tax refund advances.

An additional 13 percent had bank accounts but made use of alternative financial services. These adults are considered "underbanked" because the banking services they accessed appear to have been insufficient to meet their financial service needs.

The rest of the adult population (5 percent) did not have a bank account (figure 21). Less than half of these "unbanked" adults used alternative financial services.

Unbanked and underbanked rates were higher among adults with lower income, adults with less education, and Black and Hispanic adults. The largest differences were by education and income level. Twenty-six percent of adults with less than a high school degree, and 16 percent of adults with income below $25,000, were unbanked (table 8). The share of people with income under $25,000 without a bank account far exceeded that of the two highest income levels. As a result, 84 percent of all unbanked adults had income below $25,000, and 94 percent had income below $50,000.

Table 8. Banking status (by family income, education, and race/ethnicity)

Adults with less education and adults with lower income were also more likely to be underbanked. Nearly one-fourth of those with less than a high school degree and 21 percent of those with income less than $25,000 were underbanked.

Overall, the share of adults who were fully banked was slightly higher, and the shares of unbanked and underbanked slightly lower, than previous years. While some of the growth in the share of adults who were fully banked reflected a growing number of adults with a bank account, most of the growth came because fewer people used alternative financial services.

Continuing a trend from previous years, the share of adults using alternative financial services was 3 percentage points lower than it had been in 2019, a decline of 15 percent. Declines were similar for people with and without bank accounts, which suggests that the decline in the use of alternative financial services may not be attributed to wider availability of banking services.

Credit Outcomes and Perceptions

Thirty-seven percent of adults applied for credit in 2020, a significant decline from the 41 percent who applied in 2019. But among those who applied, the share who were either denied credit, or approved for less credit than they requested, remained comparable to previous years at 31 percent. Consistent with the lack of change in denial rates, consumer confidence about credit card applications held steady. Sixty-one percent of adults were "very confident" and 19 percent were "somewhat confident" that their application would be approved, both comparable to the confidence expressed in 2019.

The share of adults who were denied credit, or approved for less than requested, differed by income level and by race and ethnicity (table 9). Almost half of credit applicants with income below $50,000 experienced such actions, compared with only 13 percent of those with income above $100,000. Denial rates also differed by race and ethnicity, and these differences occurred at each income level. For a given income level, Black and Hispanic applicants were denied credit at higher rates than the overall population, while White and Asian applicants were denied at lower rates.

Table 9. Denied credit or approved for less than was requested (by family income and race/ethnicity)

Credit Cards

People use credit cards in different ways. Some use credit cards as a convenient, if not necessary, way to pay expenses, paying off their balances in full each month and avoiding any interest costs. Others carry a balance and thus use credit cards as a source of credit to defer out-of-pocket expenses.

Eighty-three percent of adults had a credit card in 2020. They were evenly split between the people who paid off their balances in each of the previous 12 months and people who carried balances from month to month at least once in the prior year. Among those who carried a balance at least once, over 75 percent were carrying a balance at the time of the survey.

Almost all people with income over $100,000 had a credit card, and most people with income over $50,000 had a credit card. At lower income levels, having a credit card was less common. But adults with income under $100,000 who had credit cards were more likely to use them to carry balances from month to month. Consequently, middle-income adults were the most likely to have a credit card that they used to finance purchases by carrying balances from one month to the next. About half of people with income between $25,000 and $100,000 carried a balance on a credit card at least once in the past 12 months, exceeding the shares of adults with either lower or higher income levels who did so (table 10).

Table 10. Credit card access and usage (by demographic characteristics)

Similar patterns were observed across education levels, with more-educated adults being both more likely to have a credit card and less likely to carry a balance from one month to the next. Credit card usage also differs by race and ethnicity. Over 90 percent of Asian adults had a credit card but just 3 in 10 of those who did carried a balance at least once in the past year. Black and Hispanic adults were more likely to carry balances on their credit cards than other racial or ethnic groups.

Overall, in the past 12 months, many people have reduced their credit card debt. Thirty-four percent of credit card borrowers with outstanding debt had less debt in 2020 than one year earlier, compared with 26 percent who had more debt. This pattern is notably different from the results in previous years, where the share of credit card borrowers having more and less debt respectively were about even.

One group that had not reduced its credit card debt was adults who were laid off at some point in the past year. More credit card borrowers who were laid off increased their credit card debt (39 percent) than kept their credit card debt the same or lower (figure 22). This elevated use of credit card debt after a layoff is consistent with prior years' surveys, although the share who were laid off was far greater in 2020.

The overall decline in credit card debt can be accounted for by credit card borrowers who did not experience a layoff. Compared to credit card borrowers who did not experience a layoff in previous surveys, there was about a 5 percentage point increase in the share who reported having less debt than one year prior and a similar percentage point decrease in the share reporting more debt.

Banking Problems

The 2020 survey introduced a series of questions that asked whether people encountered different problems when using banking and credit services. Overall, 29 percent of adults said they experienced at least one of the five problems asked about. The most common problem, fraudulent transactions, affected 16 percent of adults. This was followed by unexpected fees (11 percent) and customer service delays or problems (8 percent). The remaining issues, closed accounts and credit limit reductions, were less common, affecting fewer than 1 in 20 adults (table 11).

Table 11. Banking issues (by family income, education, and race/ethnicity)

People of all income and education levels reported banking issues, but those with income below $50,000 were disproportionately affected. These lower-income adults reported unexpected fees, customer service delays or problems, and closed bank accounts at higher rates than the population as a whole. This was despite the fact that people with income below $50,000 were less likely to have bank accounts or credit cards. The only exception was fraud, which was most common among adults with income greater than $100,000.

White adults were the only racial or ethnic group who reported banking issues at a rate below that of the population as a whole. In contrast, banking issues were most common among Black (33 percent) and Hispanic (34 percent) adults. In particular, Black and Hispanic adults were more likely to report unexpected fees, closed accounts, and credit line reductions than the population as a whole.

Similar differences by race and ethnicity are observed within all four income levels. As with those for adults with income below $50,000, these results occur despite the above-average rates at which Black and Hispanic adults are unbanked or underbanked. The only problem that affected all racial or ethnic groups proportionally was fraudulent transactions.