Board of Governors of the Federal Reserve System

Banking and Credit

Access to financial services from 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 2021, but notable gaps in access to basic financial services still exist among Black and Hispanic adults and those with low income.

Fewer applicants were denied credit in 2021, and the share of adults who were "very confident" that they would be approved for credit if they applied increased to the highest levels observed since the survey first asked this question in 2015. The use of alternative financial services such as money orders, check cashing, and payday loans was essentially unchanged after a years-long decline.

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, and tax refund advances.

An additional 13 percent had a bank account but also 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 (6 percent) did not have a bank account. 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-four percent of adults with less than a high school degree, and 17 percent of adults with income below $25,000, were unbanked (table 11). 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, 79 percent of all unbanked adults had income below $25,000, and 91 percent had income below $50,000.

Table 11. 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 20 percent of those with income less than $25,000 were underbanked. In addition to being more likely to use alternative financial services, lower-income adults were also more likely to use cryptocurrencies for transaction purposes, as discussed in box 2.

Between 2020 and 2021, the shares of unbanked, underbanked, and fully banked adults were essentially unchanged. Looking at the longer-term trend, however, shows a 7 percentage point decline in the underbanked rate since 2015. During this same period, the share of adults with a bank account increased by 2 percentage points. As a result, much of the decline in the underbanked rate likely reflects the decline in the share using the alternative financial services asked about in the survey.

This decline does not necessarily reflect improvements in financial inclusion, however. The market for financial products and services has been evolving during this time, particularly in the digital space. As a result, while use of these alternative financial services have declined, people may have substituted away from the products and services asked about in the survey to other nonbank offerings that are harder to measure.

Moreover, the longer-term decline in use of alternative financial services has been similar among both the unbanked and banked, providing more evidence that a wider availability of banking services may not explain the decline in the underbanked rate.

Overdraft

Overall, 11 percent of adults with a bank account paid an overdraft fee in the previous 12 months (table 12). Adults with income less than $50,000 were three times as likely to have paid an overdraft fee as people with an income of $100,000 or more. Similarly, the share of adults paying an overdraft fee tended to be higher among people with less education or of younger ages. Across races or ethnicities, a larger share of Black or Hispanic adults paid an overdraft fee in the past 12 months than the population as a whole. In contrast, 3 percent of Asian adults paid an overdraft fee, a rate about one-third of the population as a whole.

Table 12. Paid an overdraft fee on a bank account in the prior year (by demographic characteristics)

Adults with bank accounts who used credit alternative financial services and those with lower self-reported credit ratings were particularly likely to have paid an overdraft fee in the prior year.³⁹ Fifty-three percent of banked adults who used credit alternative financial services also paid an overdraft fee in the prior 12 months, about five times the rate of the banked population overall (figure 26).⁴⁰ Additionally, 35 percent of those rating their credit as "poor" and 28 percent rating their credit as "very poor" paid an overdraft fee, compared with 3 percent of those rating their credit as "excellent."

One explanation for these patterns is that those using credit alternative financial services and those rating their credit as "poor" or "very poor" were in a precarious financial position, making them more likely to unintentionally overdraft their account. Another possibility is that people without access to cheaper forms of credit were intentionally using overdraft as a form of short-term, albeit high-cost, credit. Finally, use of online credit alternative financial services themselves may directly trigger an overdraft when the lender attempts to collect payment.⁴¹

Credit Outcomes and Perceptions

Thirty-eight percent of adults applied for credit in 2021, a slight increase over the share who applied in 2020. But among those who applied, the share who were either denied credit, or approved for less credit than they requested, fell about 3 percentage points to 28 percent. Consistent with the lower denial rates, consumer confidence about credit card applications improved. Sixty-five percent of adults were "very confident" that their application would be approved, 4 percentage points higher than in 2020 and the highest share since this question was first asked in 2015. Similarly, only 12 percent of adults were "not confident" that their application would be approved.

The share of adults who were denied credit, or approved for less than requested, differed by income level and by race and ethnicity (figure 27). Almost half of credit applicants with income below $50,000 experienced such actions, compared with 11 percent of those with income above $100,000.

Denial rates also differed by race and ethnicity, with Black and Hispanic applicants being particularly likely to report a denial or an approval for less credit than requested. For Black applicants, this was also true within income levels, although for Hispanic applicants with income below $50,000, the denial rates were comparable to others with similar incomes.

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 paying expenses.

Eighty-four percent of adults had a credit card in 2021. They were nearly 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, 73 percent were carrying a balance at the time of the survey.

Almost all people with income of at least $100,000 had a credit card. At lower income levels, having a credit card was somewhat less common, though adults at these income levels who did have 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. Almost half of people with income between $25,000 and $99,999 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 13).

Table 13. 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 differed by race and ethnicity. Over 90 percent of Asian adults had a credit card but just under one in four of those with a credit card carried a balance at least once in the prior 12 months. Black and Hispanic adults were much more likely to carry balances on their credit cards than other racial or ethnic groups.

The share of adults with outstanding debt who were carrying less debt than 12 months ago was comparable with, though slightly higher than, the share carrying more debt. This pattern is similar to that in recent years, with the exception of 2020, when the share who had reduced their credit card debt exceeded the share who had increased it by 8 percentage points.

Buy Now, Pay Later

The 2021 survey introduced a series of questions about the use of BNPL services. BNPL allows people to finance a purchase by making a small number of equal payments, often without being charged interest. For example, someone purchasing a $100 item, instead of paying the entire amount upfront, may instead be able to make four monthly payments of $25, with the first payment due at the time of purchase.

Overall, 10 percent of people used a BNPL service in the previous 12 months. Seven percent were making payments under a BNPL plan at the time of the survey, with about half paying on just one purchase.

The most cited reasons for using BNPL services were convenience (78 percent) and not wanting to use a credit card (53 percent) (figure 28). Just over half of people who used BNPL also indicated that it was the only way they could afford their purchase (51 percent).

The use of BNPL was more common among people with lower income and less education (table 14). Around 13 percent of those with income below $50,000 used BNPL in the prior year, compared with 7 percent of those with an income of $100,000 or more. Similarly, 14 percent of people with less than a high school degree used BNPL, compared with 8 percent of those with at least a bachelor's degree.

Table 14. BNPL service use (by demographic characteristics)

The reasons for using BNPL also differed with income and education levels. While convenience was universally the most cited reason for using BNPL, around 60 percent of people with income under $50,000 or with no more than a high school degree cited an inability to pay for the product otherwise, compared with about one-fourth of people whose income was at least $100,000. Moreover, around 25 percent of people in these lower income and education groups reported using BNPL because they lacked another accepted payment option, more than twice the rate for people in the highest income and education categories.

People also differed in their use of BNPL according to their self-reported credit rating. Those with lower credit ratings were more likely to use BNPL than were people who rated their credit as "excellent." Among those who used BNPL, adults with lower self-reported credit ratings were also more likely to cite an inability to afford the purchase otherwise or a lack of other payment options as reasons for using BNPL than adults who rated their credit higher.

Most people who use BNPL make their payments on time. Overall, 15 percent of people who used BNPL in the prior 12 months were late making a payment. Late payments were somewhat more common among people with income less than $50,000. Late payments were also more common among people with lower self-reported credit ratings. Adults who rated their credit as "poor" were over five times as likely to have been late making a BNPL payment as someone who rated their credit as "excellent." Among people who would not have been able to afford their purchase without BNPL, 23 percent paid late, compared with 7 percent of people who did not give that reason for using BNPL.

 

References

 39. Credit alternative financial services include payday loans or payday advances, pawn shop loans, auto title loans, and tax refund advances. Return to text

 40. Overall, 4 percent of adults had a bank account and used credit alternative financial services. Return to text

 41. See Consumer Financial Protection Bureau, Online Payday Loan Payments (Washington: CFPB, April 2016), https://files.consumerfinance.gov/f/201604_cfpb_online-payday-loan-payments.pdf. Return to text