AI-Fueled Lending Boom Drives Higher Credit Approvals, But Risks Are Rising

Credit application rates are at their highest levels in more than three years and more lenders are approving credit applications, according to a survey from the Federal Reserve Bank of New York. 

Application rates for any kind of credit over the past 12 months increased in February to the highest level since October 2022. Credit card applications drove this increase. As more consumers applied for credit, more lenders were using automated processes to say yes to granting credit.

The overall rejection rate for any kind of credit over the past year decreased to 15.9%, the lowest level since 2021. There has been a big drop in this rate in the past few months. In October 2025, this rejection rate stood at 24.8%.

Here’s a sobering statistic. The share of survey respondents who reported a lender closing an account in the past 12 months increased to 9.1%. So some consumers are struggling with the credit they already have.

The Impact of AI on Loan Approvals

Fintech companies using automated underwriting systems and AI tools are processing large numbers of credit applications and increasing loan originations. This may be a factor in the lower credit rejection rates and higher originations revealed in the New York Fed survey.

Here are two examples: In the fourth quarter of 2025, Upstart had $2.9 billion in personal loan originations, an increase of 41% year over year. And SoFi did even better, originating $10.5 billion in loans in the fourth quarter alone.  

Consumer Income and Savings

Personal income increased $113.8 billion in January according to the U.S. Bureau of Economic  Analysis. Disposable personal income, which is personal income minus personal taxes, increased $219.9 billion, and personal consumption expenditures increased $81.1 billion. 

So income levels are increasing but so is personal spending, which may explain why consumers are reaching for additional credit. Now let’s look at how consumers are saving. Personal saving was $1.05 trillion in January, and the personal saving rate is 4.5% of disposable personal income. 

With such a small savings rate, consumers may need to reach for credit if an emergency arises. According to the Federal Reserve, 37% of Americans said they would not be able to afford a $400 emergency expense. These Americans would need to borrow or sell something to cover the cost of an emergency expense. 

Impact of Greater Credit Approvals

Lenders are increasing their credit approvals and more consumers will be granted credit. This means more consumers will have credit accounts they are responsible for paying on time.

As long as payments are on time, all is well for the consumer and the lender.

But if consumers are unable to handle the credit given by lenders, this may lead to delinquencies and even defaults. High interest rates, inflation pressures, lack of emergency funds could lead to trouble for consumers who are granted more credit than they can handle.

The Bottom Line

Credit application rates are at their highest levels in more than three years with credit card applications driving this increase.

Lenders have slashed credit rejection rates to 15.9%, the lowest level since 2021. One factor for the decline of credit rejection rates may be the use of automated underwriting systems and AI used by fintech companies.

Personal income levels and personal spending are increasing and the personal savings rate remains a modest 4.5% of disposable personal income. With such a small savings rate, Americans may need to apply for more credit to handle financial emergencies.