Credit Slow Down May Hurt Economy
December 3, 2007
The US Federal Reserve has calculated numbers that show that many consumers are experiencing higher credit card balances than they had just one year ago. This comes right on the heels of the lower home values which result in less ability to take cash out via home equity loans. In the past, home equity loans and lines of credit were often used to pay down or pay off holiday spending. That may no longer be a choice for many consumers.
In addition to lower home values, many banks are reining in their credit standards for both consumer loans and for credit cards.
Red Gillen, senior analyst with Celent, an independent research agency that keeps track of financial services recently stated: “They [the banks] are under a lot of scrutiny right now, and they’re seeing increasing delinquency and default rates. That will translate into more people being denied credit cards, or being denied the chance to increase their credit line.”
Some banks have begun to trim existing credit lines on cards or they are charging higher penalties for missed payments.
Many consumers, especially those consumers who do not have high credit scores, may begin to find it more difficult to transfer balances to new cards that carry lower introductory rates.
If consumer spending on all levels begins to dry up, the nation could see the makings of a true recession