The days of the credit card (and the debit card) are numbered. This is not some alarmist statement (or maybe it is), but the financial institutions are really trying to reduce the amount of credit available to borrowers. Why? It all goes back to the end of subprime.
The Credit Bubble.
Just after the dotcom bubble, the banks and credit card companies were struggling. The free-wheeling days of internet billionaires and instant millionaires was ending. That also meant the end of the first housing bubble from that era. People were borrowing less and saving more to face the new economic reality. In other words, things were returning to normal.
Unfortunately, normal was not a good thing for the banks and credit card companies. They needed new borrowers and they needed them to borrow, NOW! It was the only way for the bankers, the mortgage brokers, the stock market, and the government to continue lending, selling, investing, and financing. In other words, they all needed us (the average working American) to go into DEBT and lots of it!
Well, they got their wish. The central bank, the Federal Reserve, lowered rates artificially and the credit bubble was inflated like never before. It led to abundant credit cards, home equity loans galore, abundant lines of credit, and readily available easy financing.
By 2005, anyone who wanted credit, got it. The credit bubble was in full swing!
The End of An Era.
It was clear that all this easy credit was not normal, as evidenced by the ballooning real estate prices. But, this was only one symptom. The other was the flood of credit cards that were appearing. Add to this, the arrival of the debit card and you have a credit tsunami that hit the United States from 2002-2007. It was an incredible 5-year period to go into debt!
By 2008, the cracks were not only appearing in the financial world, they were threatening to bring it all crashing down. Consumers were falling behind under this crushing weight of easy credit. The banks began seeing more foreclosures and loan defaults. In response, they raised the interest rates on borrowers. That just compounded the problem.
It became harder to pay off credit cards as interest rates rose. The path toward bankruptcy and insolvency became more and more inevitable for many Americans.
Finally, it all came to a climax and the government stepped in to prevent the whole thing from collapsing. With that, came the end of the easy credit era. From that point, debt would no longer be a given. In fact, credit has become harder and harder to get with each passing year.
No More Free Lunch.
The credit reporting agencies failed the average American during the easy credit area. Experian, Equifax, and TransUnion used borrowers as a way to increase profits for the banks and lenders. Remember, they do not work for the consumer. You are not their customer. They have no obligation to you other than what’s required by law.
Getting a loan for college, a car, a home, or on a credit card will become increasingly difficult as the next decade continues. There is an incredible amount of debt that needs to be retired that probably will not given the current economic climate. That means the banks and other lenders will have losses that they need to recover first before increasing credit. Don’t count on a loan to get what you want unless you have a superb credit history WITH collateral.
Credit Card, Say Bye Bye.
If you use a credit card for your day-to-day expenses, I strongly recommend against it. The credit cards are becoming desperate with each pasisng year to increase profits. The new CARD Act eliminates a number of their more profitable practices. So, they will have to either come up with new ways to replace them or reduce their business.
Reduced business will result in many higher-risk card holders losing their accounts. Even lower-risk card holders may see credit lines cut, higher charges and fees, or higher minimum monthly payments, or yearly service fees. This will only get worse with time.
What Should You Do?
If you need to borrow (home, car, college, business), it’s best to do it as soon as possible. Take advantage of the opportunity while it is still there because there is a good chance it may not be in a year (or 2 or 3, etc.).
First, get your credit score. Find out what they are saying about you when getting a loan. This is critically important when getting credit.
Second, correct all the inacurrate information on your report. Fix old addresses, wrong names, and other contact information. Then, dispute any charges you see that are unfamiliar to you.
Third, get some credit monitoring. You will need this to track the corrections and disputes you made from the previous step.
This process takes some time. But, the sooner you do it, the sooner you can take advantage of the relatively stable credit conditions that exist today. Believe this… in 1 year, today will look like a credit paradise.
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