Credit card rejections are on the rise yet banks are increasing limits for existing customers, Fed data shows - as more Americans look to pay for the holidays on plastic

Banks are increasingly rejecting applications for new credit cards - but are happily increasing spending limits for existing customers, new figures show. 

The mixed picture comes as more and more Americans are turning to cards as wages are not rising as fast as prices - especially with the holiday season in full swing. Total card debt has now swelled to a record $1.08 trillion.

There were increases in applications for both new cards and an increase in limits to existing cards, data from the Federal Reserve of New York shows. But lenders dealt with both differently.

On one hand, banks rejected one in five credit card applications this year - amid fears Americans might not be able to pay bills.

But, while lenders are becoming more stingy about giving out new cards, they are happier to raise spending limits for existing customers, the data shows.

Card firms are willing to meet requests from current customers for a bigger limit as they can quickly and easily check their spending and repayment habits. 

It is different with new applicants. While they can check credit files, they can't see more precise spending - for example, if someone has suddenly upped their outgoings significantly.

Rejection rates for credit card applications rose from 18.5 percent to 19.6 percent in 2023, the Fed data showed. 

The increase might seem small in percentage terms, but amounts to hundreds of thousands of extra rejections across the US. And it now means nearly one in five Americans are being denied credit. 

Of those with a card, the New York Fed found that 14.4 percent asked for a bigger limit - up from 11.5 percent in 2022. The average credit card limit for Americans is $28,930, according to the latest data from credit report agency Experian.

The application rate for an increased credit limit was highest among those with poor credit scores, the New York Fed said.

More lenders also approved applications for bigger limits - with rejection rates declining to 30.9 percent this year from 35.3 percent in 2022 - the data showed.

Inflation reached a 40-year high of 9.1 percent in June 2022, and has since fallen to an annual rate of 3.1 percent in November. 

This is still above the Fed's 2 percent target, meaning Americans are turning toward credit to stay afloat. 

Households now have $10,170 on average in credit card debt, according to WalletHub analysis - and more people are struggling to keep up with payments.

Delinquency rates for nearly all loans have been rising from the rock-bottom levels seen during the pandemic, according to the New York Fed. 

Brandon Robinson, president of financial services company JBR Associates, told USA Today that people are 'using more credit card utilization – over 30 percent or well over 50 percent of their credit card allowance – and then can't get approved for another card because their credit rating is down.' 

A credit utilization rate is the credit you are using divided by credit available to you - and is especially important when it comes to credit cards and other revolving loans.

For example, if you have a $5,000 limit on a credit card and you charge $2,000 on it, your credit utilization rate is 40 percent.

Financial experts typically recommend aiming to keep your credit utilization rate below 30 percent, while FICO says most people with the best credit scores keep it below 10 percent, according to Bankrate senior industry analyst Ted Rossman.  

He said that Americans should be careful to keep track of their credit utilization rate - and use it as a way to boost their score. 

'Credit utilization is something you can change pretty quickly,' Rossman told DailyMail.com. 'It's usually reported on your statement, which a lot of people don't realize.

'Even if you pay in full every month and avoid interest, you may have a high utilization ratio if you use the card a lot. Say you go on vacation or do some home improvements and you spend $4,000, you've used 80 percent of your credit that month. That looks risky.'

He continued: 'My advice would be consider making an extra mid-month payment or two, or maybe ask for a higher credit limit. Those are both ways that you can bring this ratio down.'

Many major credit card companies and some auto loan companies have begun to list credit scores on your monthly statement.