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How the Credit Crunch Affects You

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The credit industry has taken a big hit recently as the credit crisis is clamping down on the US and world economies. Many companies are feeling the credit crunch, and as a result are changing their business practices. This week, American Express gained government approval to classify their company as a bank in order to more easily apply for economic bailout money.

The credit crunch restricts lending

The credit crunch is affecting businesses and consumers alike. On the business end, many companies are finding it difficult to obtain large loans in order to expand operations, or in some cases pay operating expenses. Many companies are in serious financial trouble and layoffs are a distinct possibility. Consumers are also finding it difficult to obtain loans to purchase large ticket items such as automobiles and houses. While I am not a fan of unrestricted lending and spending, stopping the flow of credit will kill our economy.

Credit Card programs changing

Many credit card companies have been hit by this financial crisis as well and are cutting costs and raising fees. Some of the best rewards cards are also being eliminated. Recently, Chase got rid of the Chase Freedom® MasterCard card, and replaced it with the Chase Freedom® MasterCard Card, which has a similar, but slightly less generous rewards plan. It appears as though several other credit card companies are planning on making similar cuts.

Many companies are also getting rid of generous balance transfer deals. A little over a year ago, it was relatively easy to find free, 0% balance transfer offers. Many people would transfer their credit card balance at 0% interest and invest the money in a high yield savings account, while maintaining minimum payments on their credit cards. As the credit industry has tightened lending, these free 0% balance transfer offers are becoming more difficult to find.

Credit card bonus offers may be the next place that credit card companies look to save money. With these changes happening, it may be best to take advantage of deals before they are gone.

Take care of your credit score

The credit crunch is affecting all aspects of our economy – from businesses, to employment, to consumers’ ability to spend.  No one knows when the credit crunch will end and it may get worse before it improves. Your credit score is an asset and you need to treat it as such. As the credit crunch continues and the economy worsens, your credit score will become more valuable. Now is a good time to understand your credit score and work toward improving your credit score. You owe it to yourself, especially in a bad economy.


Published or updated February 27, 2011.
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{ 11 comments… read them below or add one }

1 Kristen

One thing everyone needs to do during the “credit crunch” is open their mail! People have a tendency not to open mail from their creditors, especially if they think it’s junk mail. Some credit card companies are sending notices to their customers about their credit line being reduced or their interest rates increasing, and the notice is getting tossed in the trash. Then the consumer is shocked when they try to use their credit card and find out they are over the limit.

Please read your mail and read your statements every month. Don’t get caught off guard.

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2 Mr. ToughMoneyLove

I’m going to push back a little on the “credit score is an asset” thing. It’s an asset -yes – but for FICO, TransUnion, Experian, and all other members of the consumer credit industry who have made us credit score addicts and rake in the profits from our addiction. As we follow along like lost sheep, the industry has extended use of FICO scores into every aspect of our lives. I for one will not cooperate. I do not know my credit score and never have. I live my financial life as it should be lived and seek out financial partners and vendors who appreciate that. It works.

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3 MelStar

One of the most difficult things in the world to do is getting credit card companies to stop sending you the special offers in the mail. Sometimes you get them in the mail a half dozen at a time.

Despite all your efforts they continue to send them.

But let a little ol” credit crunch get started and the offers miraculously stop by themselves.

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4 Kristen

@MelStar — You can get credit card companies to stop sending you those offers! Call (888)567-8688 or go to http://www.optoutprescreen.com. It’s basically like a “Do Not Call” list for credit card offers. They ask you some questions and then your name goes on a list.

I signed up last year, and I haven’t gotten one offer since.

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5 Craig

I think the most important thing to do is be responsible. You will get tons of direct mail from credit card companies offering this and that program. Bottom line is be responsible and look after your credit score so it can help you in the long run. Reward plans may drop now but will be back once the economy turns around. Those are also bonuses, not necessarily guaranteed.

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6 David

Credit is still available for people with good credit scores – I just got approved for an Amtrak Chase card with an $11,000 limit. So if you have good credit and need a new card, don’t be afraid to apply – you can still probably be approved!

And ToughMoneyLove – while I agree it is a dumb system, it is all they have right now to base anything on, so I do like having a score high enough to get me any credit I need – car, house, credit card. I would like to see the system change, but I don’t think it will happen anytime soon.

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7 Ryan

Kristen: Great point – the credit industry has recently been changing credit limits and rates for many customers.

Mr. TML: I agree with you 100%. I’m not advocating that people purchase their credit score and count point weekly point increases. But with tighter credit, I think it is important for people to improve their scores if they want to be able to have access to credit. As long as you are maintaining good financial practices, your credit score should reflect that.

MelStar: Kristen has a few good tips. :)

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8 No Debt Plan

How about it crashes the economy and we all end up without a job? :)

Stimulus and bailout programs will fail (especially when the bailout is being used to buy bank stock rather than to lend to consumers and businesses). Economy is shot. Very pessimistic, I know.

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9 glinkka

I read that your credit card limits are used as part of your debt load when applying for a mortgage. I was wondering if a limit on a credit card is used as a part of the load a credit card company has. So, if there are limits out there that are not used does that weigh on the companys ability to loan?

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10 Jarhead

The credit crunch isn’t affecting me at all, I jacked up my credit a few years ago so I wasn’t getting approved for new credit anyway.

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11 Ryan

glinkka, I’m not sure exactly what affects a credit card company’s ability to create new loans, but I am sure that figures into it somehow.

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