By now, many of you may have heard the buzz phrase “Credit Crunch.” This has been reported in the last few weeks on most all media outlets. Just the sound of that phrase is frightening in today’s economic environment. Interest rates are up, the cost of goods and services have risen, and many may see a rather bleak outcome in the near future.
But what is a Credit Crunch? Simply defined, it is a decline in lending activity by banks and financial institutions that occurs when there is a shortage of funds. This occurs, but not always, when in a recession or a looming recession. Banks and financial institutions use an abundance of caution when deciding to lend. It becomes very difficult, especially for small businesses, and consumers to borrow. These institutions are terrified of bankruptcies or defaults on funds lent. Don’t get me wrong. Loans are one of the biggest revenue generators for these institutions. So, they don’t halt all loan activity. They just make the specifications more stringent to slow the rate of loans granted. They do this by higher interest rates and rely more heavily on credit scores.
So how does the average consumer react to this Credit Crunch environment? How does one prepare for a Credit Crunch? Well, if you see yourself needing to borrow in the near future, here are some tips.
Be sure your credit profile is the best it can be.
-Pay your revolving lines of credit (credit cards) on time and pay them off every month! Maximize your credit utilization. The lower the balance to your credit limit, the better you are scoring.
– Slow your spending and save more. In a Credit Crunch, there is a larger possibility of an economic downturn. Be sure you have enough cash on hand to be able to overcome any obstacles like medical emergencies, layoffs, unexpected expenses. Experts say having three to six months in reserve is ideal.
– Get a copy of your credit report. Dispute any accounts that appear to be unknown, unverifiable, or inaccurate. Remember, the cleaner your credit profile, the more worthy of gaining a loan.
If you find items on your credit report that fit the above description, and you need help on getting those issues resolved, please give us a call. We’ve helped over 30,000 people better their credit profile.
Credit Law Center
1-800-994-3070
