NEW YORK (CNNMoney.com) -- Bankers say they are lending but try telling that to consumers having difficulty getting approved for mortgages, credit cards or auto loans.

In recent weeks, politicians have accused financial institutions of failing to extend credit, despite taking in billions of dollars in taxpayers' funds during the past few months.

But financial executives, including the CEOs of eight banks that testified before Congress last week, have maintained that they are making new loans and that the nation would face an even more severe credit crunch had the government not thrown the industry a lifeline.

Still, it's hard to deny that credit is tighter. One reason, experts said, is that many non-banking entities that provide credit, often referred to as the so-called "shadow-banking system", have withdrawn massive amounts of financing from the broader economy.

Money-market funds and insurance companies, for example, have typically been big buyers of debt from companies looking to raise quick cash, notes Rick Spitler, managing director at the New York City-based consultancy Novantas, which focuses on financial institutions. That's no longer the case, forcing corporations to look to banks for credit.

In addition, large institutional investors such as hedge funds and pension funds have shown little appetite for securities backed by mortgages, credit cards and commercial loans, hampering banks' ability to issue new loans.

"The shadow banking system hasn't recovered enough to pick up all the slack and bank capital isn't big enough to fill in for lack of supply and financing," said Spitler.

Some community banks and credit unions have attempted to fill the void left by some of their larger peers but cannot keep up with all the demand for loans, said Sherrill Shaffer, a professor of banking at the University of Wyoming in Laramie who served as the chief economist for the Federal Reserve Bank of New York during much of the 1980s.

Despite this, many banks are doing what they have always done during tough economic times - pulling back on all types of lending and trying to hold onto capital to help safeguard against further loan losses.

'Welcome to our banking nightmare'

Those excuses have done little to satisfy consumers who have e-mailed CNNMoney.com to share their stories.

George, a Wake Forest, N.C. resident who wrote to CNNMoney.com following last Wednesday's Congressional hearing of leading bank CEOs, complained that Citigroup (C, Fortune 500) recently raised the rate on his credit card from 6% to 15% due to higher funding costs.

Small businesses have also felt the pinch. Chris, a vice president at a Kansas City-based retailer with more than 500 employees, e-mailed to say his business was now struggling to find a lender after Bank of America (BAC, Fortune 500) pulled its credit line.

Another small business owner who operates a homebuilding firm just outside of Savannah, Ga., said his company was denied financing by five different lenders, including regional giant SunTrust (STI, Fortune 500), for a loan to purchase a 1.6-acre piece of property. "Welcome to our banking nightmare," the owner wrote.

Banks contacted for this story, all of whom were recipients of billions in government aid, stated that they were simply trying to manage risk in the current credit climate and that changes experienced by consumers or business owners were merited in some instances.

"All our lending decisions are based on doing what is best for our customers, our company and investors," Wells Fargo (WFC, Fortune 500) said in a statement.

Citigroup, which has received $45 billion in investments from the government, said it was looking to change the rates on credit card account holders that had not been repriced in at least 2 years and added that those customers could opt out and continue using their cards until they expire.

"We are carrying out this repricing in order to continue lending in this environment," Citigroup spokesperson Samuel Wang said in a statement.

Who's creditworthy, who's not

Other experts point out that while banks are tightening their standards, they are mainly doing so on consumers who earn less.

An online survey of more than 1,000 individuals in December conducted by Synergistics Research Corp., an Atlanta-based market research firm that focuses on the financial services industry, revealed that overall, one in six consumers were denied credit in the past three months.

But for households earning less than $50,000 annually, approximately a quarter were denied credit.

So who is an ideal candidate to borrow nowadays?

"Someone who doesn't need any money," said Charles Wendel, who runs Financial Institutions Consulting, a Connecticut-based strategic consulting firm that advises banks.

Credit still remains available for those consumers with a high credit score, a stable job and plenty of equity in their home, he notes. In other words, banks may be trying to minimize the number of loans that may actually default.

"The guys [banks] don't want are maxing out their credit card lines," he said. "[Banks] are lending, but lending more selectively."

Still, many CNNMoney.com readers have told us that they have strong credit histories and are running into problems getting new loans.

If you have recently applied for a loan and have been turned down, go to our Talkback and share your story.