More Americans are being rejected for credit card applications in 2023, so they’ve decided to ask for limit increases instead.

A deeper dive into the New York Fed’s credit access survey shows that the rejection rate for new credit card applications in 2023 has increased by 1.1 percentage points to 19.6% as of October.

Meanwhile, applications for credit limit increases jumped to 14.4% from 11.5% in 2022. The overall rejection rate on limit increases fell to 30.9% from 35.3% in 2022.

In other words, more Americans are asking for, and being granted, credit limit increases compared to last year.

The Fed’s data showed that consumers with credit scores below 680 were more likely to apply for credit limit increases. FICO’s credit scores range from 300 to 850, and anything below 670 is where consumers get into trouble.

According to Experian, 67% of Americans have a FICO score of 670 or better. One in three (33%) struggle with lower credit scores that make it more difficult to qualify for certain loans or competitive interest rates.

There’s a reason why so many consumers are asking for limit increases—they’re close to maxing out their credit cards ahead of the holidays.

Americans are approaching a credit dead-end

Data from the Boston Fed shows that average credit card balances have risen sharply since the pandemic, with lower-income consumers approaching their limits.

On average, Americans earning less than $50,000 annually have used up 80-90% of their available credit.

Consumers in this situation have “a very small amount of credit left on their accounts to cushion against a deterioration of their financial situation,” Boston Fed senior economist Joanna Stavins wrote.

Stavins warned that an “unemployment spell might cause further distress,” leading to higher delinquency rates.

Delinquencies are already on the rise, with the New York Fed reporting that 2% of new credit card borrowers were at least 30 days behind on their payments in the third quarter.

Credit card transaction data tracked by Goldman Sachs also reveals that issuers are bracing for more defaults as consumers struggle to make payments.

The net charge-off rate for the largest credit card issuers has far exceeded the average.

Credit balances rise, but usage may have peaked for now

U.S. credit card balances reached $1.08 trillion in the third quarter, increasing by a record $154 billion from the year before.

But as more Americans reach their limits and are forced to pay higher interest rates on their balances, credit growth appears to be slowing at the start of the fourth quarter.

According to Fed data, total consumer credit increased by $5.2 billion in October, much lower than the $12.2 billion gain the month before and well below The Wall Street Journal’s forecast of a $9.1 billion jump. The monthly credit growth rate was 1.2%, down sharply from 3% in September.

Growth in revolving credit like credit cards slowed to 2.7% in October from 4.1% the month before.

According to Michael Pearce, U.S. economist at Oxford Economics, tighter lending standards and higher rates are beginning to weigh on consumers.

Meanwhile, Pantheon chief economist Ian Shepherdson told MarketWatch: “The clear downward trend in consumer credit should resume over the next few months, as higher rates make people less willing to take on additional debt.”