Pedestrians walk along Wall Street outside the New York Stock Exchange (NYSE) in New York, US, Monday, April 6, 2026.
Michael Nagle Bloomberg | Getty Images
The closure of the Strait of Hormuz has caused global economic instability, increased prices for everything from gas to pharmaceuticals and caused shortages of everything from jet fuel to helium. That affects major companies in the market in a variety of ways, from oil majors to airlines. But foreclosures can affect something else: your credit score.
The tension between the US and Iran over the deepening crisis, which some CEOs say may not be fully resolved for another year, is not causing your credit score to drop, but it is causing banks and other lending institutions to monitor consumer credit more closely and tighten their approval processes.
“Nobody’s credit score is going down because of Iran. But try getting approved for a mortgage right now with a 670 FICO and see what happens,” said Alexander Katsman, CEO and founder of Credit Booster AI, an AI-powered credit enhancement platform.
The kinds of credit events that banks talk about publicly are speculative in nature, as JPMorgan CEO Jamie Dimon warned this week that “We haven’t had a recession in a long time, so if we do have one, it could be worse than people think. It could be worse.”
But here and now, Katsman says lenders are tightening up when it comes to attacking consumers — internally, if not publicly. “They don’t announce it, there’s no press release saying ‘we’ve increased our termination from 660 to 700.’ It just happens,” he said.
If the underwriting overlay is tight, and the layers of manual review become too difficult, suddenly a borrower who went through six months ago is getting “we’ll get back to you” emails with no follow-up messages.
Katsman says this is already happening in real time with customers.
“Guy came in last week, 690 FICO, two years in his career, $8K in savings. He was denied a car loan. The same profile was accepted in November 2024 without a hiccup. His credit did not change. The desire to take a risk did,” he said, adding that the mortgage side is worse.
David Temko, president of C2 Financial, a California-based real estate company, said times of global instability are testing the discipline of everyone from loan officers to lending institutions, making credit profiles an attractive alternative to the rejection pile for some, but not all, lenders.
“When risk increases, you’ll see institutions with strong infrastructure and consistent underwriting remain strong while others tighten the cracks, increase reserves and speculative files that have been cleared to close in days,” said Temko.
Interest rates don’t tell the whole story
One of the silver linings in the 2026 economy that consumers had hoped for was already a subdued environment as inflation eased, but the war and rising oil prices raised expectations for central bank policymaking. Although a new Fed chairman may be in office soon, there was no rate cut at this week’s FOMC meeting of the Federal Reserve, as expected, and traders are now betting that there will be no rate cut through 2026.
But that may just add to what is already a strong credit environment.
“Even if rates go down, access to credit can still be difficult because confidence is not reflected in the rate sheet,” said Temko.
“Everyone’s looking at rates, waiting for them to come down. But a rate cut doesn’t mean anything if you can’t underwrite,” Katsman said, noting that lenders in the 640-700 range are adding documentation requirements that basically work like a soft downgrade.
Bobbi Rebell, a personal finance expert at credit card comparison site CardRates.com, says that while the link between geopolitical conflict and credit scores is tenuous, it does exist. “Lenders may call for greater uncertainty including a higher risk of inflation. In the case of the Iran war, we have seen inflation hit the US economy and that will make them more cautious,” said Rebell.
Inflation rose 3.2 percent in March, exceeding the Fed’s 2 percent target.
“They are taking a lot of risk because of the volatility and that can affect how they choose to lend,” Rebell said.
Fed Chairman Jerome Powell noted at his FOMC press conference on Wednesday, that inflation is “high and elevated,” and added that pressure from oil prices is likely to remain. But he also noted that near-term, not long-term, inflation expectations have increased, while the long-term outlook is consistent with the central bank’s 2% inflation target.
As for the change within the FOMC, with many members (albeit still a minority) voting against the language that maintains the institution’s bias toward tapering, “It’s easy to see why,” Powell said. “Good question. Okay? You see inflation is up more than a while, core inflation’s 3.2 now, it’s moving albeit slowly in the wrong direction, and we know there’s going to be – you know, there’s inflation coming out of the Gulf and we don’t know how much that’s going to be, we just need to – we’ll see.”
Near-term uncertainty may weigh on credit markets even if the rate outlook remains skewed towards an eventual cut.
“Even if the mortgage rates will decrease, because lenders want to control their risk, it may be difficult to access credit. It may be confusing for consumers, but it is important to remember that credit markets are not only focused on rates – they are also focused on risk perception and risk,” said Rebell.
The link between geopolitical shocks and creditors
Mariano Torras, professor of economics and chair of the department of finance and economics at Adelphi University, says that there is a real way in which geopolitical shocks translate into stronger debt, and the US-Iran war qualifies as such a shock.
“When uncertainty rises, lenders obviously need to change their behavior beyond raising rates. Loss projections are rising and lenders who have been cautious after years of weak balance sheets are becoming defensive,” said Torras. Even if a lower mortgage clears the underwriting, a lower down payment may be required than would have been requested before the war.
“Even if headline rates ease — there is not expected to be an imminent change in Fed leadership — the effective cost of credit could rise when fewer borrowers qualify,” Torras said. He calls this a “risk channel,” where world shocks are propagated not only in numbers, but in reach.
The barriers to getting a loan are getting higher and higher, according to Katsman. “They don’t say no, but they ask for so many documents that people stop,” he said, noting that some customers check their credit before trying to get a home loan and get a false sense of security.
Torras says most households will see results, even those with sufficient credit. But it means fewer car loans and mortgages, leading to weaker consumption. Torras fears that today’s tight credit market could be a precursor to what systematic credit opening will look like. “It’s not a dramatic crash all at once, but it’s closing doors that were open,” Torras said.
Meanwhile, Jeremy Schachter, a branch manager at Fairway Independent Mortgage, a national lender based in Madison, Wis., is processing applications as usual but fears the long-term economic shock of the war could cause a credit crunch similar to what happened during the Covid era. “When there is prolonged global volatility, lenders tighten their guidelines and risk tolerance,” Schachter said.
During the Covid period, lenders began to apply stricter guidelines, especially in the jumbo mortgage arena. Investors began to have higher credit score requirements, more documentation of income stability and more verification, he said.
Meanwhile, some lenders vow to stick to bread-and-butter lending principles.
“We will not strengthen underwriting standards just because of geopolitical noise. If small businesses continue to generate stable income and serve their obligations, capital will always be there,” said Dean Lyulkin, CEO of Cardiff, a small business lending platform.
Lyulkin said approval rates, settlement behavior and loss curves are largely following where they were before the Iran conflict.
“We have to look forward every day, but stable real-time metrics carry a lot of weight,” Lyulkin said, adding that credit quality from application flow and real-time portfolio performance is still on a day-to-day basis. “Will some lenders worry and postpone? Yes, “Lyulkin added, but any lender that postpones the risk of losing customers to competitors.
For consumers, Katsman says, the least that should be done now if a large purchase is planned is to pull the credit report early. “People look at Credit Karma, see the same number as before and think everything is fine. Then they walk into the dealership and close their eyes,” he said. He has seen an increase in customers coming in after unexpected rejections, “not because something went wrong with their report, but because the lending situation changed under their feet,” he added.
