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Credit, Creditworthiness and the Credit Crunch

 


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Credit is another word for borrowed money. Credit borrowing puts money in your bank account to spend and that is why we talk of getting “credit", and “credit cards".

Credit is valuable to us all for the freedom to spend when it is important to do so. The quality of life of previous generations was reduced by their inability to sensibly gain access to basic credit facilities. The importance of how much credit you have and how you use it goes far beyond shopping, and can for example aid borrowers immeasurably during ill health, and aids entrepreneurial development to a surprising degree.

Whether you have a good or poor credit record can affect where you live and even where you work. This is the case for example, if your credit record is considered by prospective employers. For this reason, and the fact that creditworthiness has begun to permeate so many areas of everyone's financial life you need to understand how credit is awarded or denied, and what you can do if you are treated unfairly.

The major US laws that regulate credit are as follows:-

Fair Credit Reporting Act
Equal Credit Opportunity Act
Fair Credit Billing Act
Fair Debt Collection Practices Act.

It is a good idea to find out a basic understanding of these Acts, and this can be achieved by searching Google and other internet search engines.

Creditworthiness

The credit score is a “grade" of creditworthiness. Individuals with good credit scores can obtain credit more easily, and at lower interest rates.

The credit bureaus, who hold the data about our spending behavior, were recently criticized by the national mortgage brokers’ association for selling “trigger lists" containing personal and financial information on prospective borrowers to sub-prime real estate lenders. These were introduced in 2005 by Experian™. Their basic trigger list includes the names and contact information of people who recently applied for a mortgage. It may come as a surprising thought that many companies seek out this information, but it is a clear pointer for targeting market individuals who will tend to need to purchase whole range of goods, and will usually be creditworthy. So, be aware that credit records have this very wide variety of uses these days.

If for any reason your credit record becomes damaged you will be wise to embark upon a period of credit improvement. Shopping trips to big malls don't help us to maintain good credit ratings, but neither does years of traveling to visit far-flung friends, multiple bouts of moving expenses while job hopping from city to city, or those career stops for more education which are taken by many of us. Nowadays, for many Americans these sorts of events have become normal, so don't depress yourself by being excessively critical of yourself if, for you, this has resulted in bad credit.

The credit report improvement process is also very do-able. It is different for every client and depends on the amount of negative and indeed quite possibly incorrect information listed in your credit report. Indeed, some negative items can be removed in as little as 3 months, by taking advice and using and repaying credit - possibly through actions like the use of prepaid credit cards .

The Credit Crunch

The so called “credit crunch" is the reduction in credit available which has resulted from imprudent lending by banks to a section of the community which in times gone by would not have been able to borrow money to buy themselves homes, or for other purposes.

These are people who have not been particularly responsible in the past with their money held less than optimum credit ratings. However, with the economy stable in the mid-2000s for a long period, the bank lending community became rather too keen to lend to such people. They were enticed by the ability to charge higher interest rates than made available to more credit worthy individuals. However, once harder times hit the US from 2006 onwards these very people became the first to suffer from the economic slowdown. Defaulting rates on these loans rose, and the interbank lending which in the past provided the money-lenders with the cash to sign up these loans, suddenly decided they could no longer risk their money with these “sub-prime" lenders. The result is what has been termed the “credit crunch".

The economic slowdown has also brought many professionals down on their luck. Banks withdrew credit lines and the interbank lending market froze up. The US central bank - the Federal Reserve - desperately scrambled to restore calm but without success.

However, US entrepreneurship is not yet dead. Entrepreneurship is often stimulated by hard times, and this could be a saving grace that my yet revitalize the US economy. The shake-out should not only provide them with new opportunities, but as those with drive and talent develop new businesses they will create more jobs for others as well. Before you know it, the credit crunch could end up actually stimulating the economy instead of the other way around.

Checking your credit report regularly for errors and having misinformation corrected immediately can minimize surprises. However, when you go to look for free credit reports be careful not to submit your details to one of quite a number of scam internet sites, - so called free credit card information providers which are nothing of the sort. Always remember that there are just three main nationwide credit bureaus that compile credit report information, and no more. Anything else is a scam.

Shop for the credit terms that best meet your borrowing needs without posing undue financial risk. And remember; failure to repay the amounts you've borrowed, plus interest, will certainly damage your credit record and could ultimately mean the loss of your home.

Steve Evans has produced a free video about debt repayment which is called “Paying of Your Debt Fast . " Simply solutions for all those with a debt problem.

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