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Tags: finance, credit, tougher credit standards for you
 Karen, a friend of mine, phoned me the other day with some disturbing news. She had just received a letter from her credit card provider saying that the credit limits of two of her cards were being slashed drastically. A few other acquaintances of mine told me the same thing.
A couple of them even said that they were in the process of refinancing their home and they told me they had to show more documentation than they did when they first applied for their mortgage. One and all they were wondering what was going on? So was I. After looking this up it seems that what my friends experienced was also happening to other people around the country.
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The main culprit if you will was the current state of our economy. Credit availability has been tightened by financial institutions as risk aversion has accelerated over the months resulting in tougher credit standards for you. For credit card providers the belt tightening comes in the form of cutting credit limits, much like what they did with my friend Karen.
And much like the others who got affected this way Karen has a good job, keeps low balances on her cards, always pays on time and has a FICO score over 700. It seems that the financial institutions are focusing on their customers that have low balances or inactive accounts, or those with no red flags or risk triggers such as late payments, bounced checks, and the like.
Because of this, Karen expects her FICO score to come down as her debt to limit ratio jumps up drastically. For a good number of affected persons, they will see their scored go down through no fault of their own—it is basically the system that is creating the downturn. Quite ironic considering it was these same institutions that were forcing their cards on people before all these happened.
However, it’s no laughing matter since even a small drop in your FICO score can make a big difference in whether you can get a mortgage, a car loan, or another credit card, and whether you will be getting a good interest rate if you are successful in getting one.
After all, banks across the nation have raised the requirements in order to get a loan from them. Let me say this, the requirements are significantly more challenging, regardless of what type of loan you want to get. It doesn’t mean you won’t be able to get a loan if you have a good credit record.
It just means that you have to be extra diligent when applying for one. One thing I’m sure you’ll be doing a lot of is paperwork. In fact you may find yourself swamped with documentation requirements—W-2 forms, pay stubs, income tax returns, as well as any and all financial statements.
This is so the banks can check your credit worthiness in order for them to decide to lend you their money. If you are buying a home you may not be able to money as much money as before when the economy was doing well. Full financing seems to be a thing of the past so you may want to save up on a sizeable down payment amount in order to get a loan and more so if you don’t want to have to pay for mortgage insurance.
And in case you are not one of those people with a good record you more likely need to pay extra fees in the form of higher interest rates or “points” on your loan. What this all means is that now more than ever it is important to shop around for and compare different loan offers.
Personally you should keep tabs on your FICO score and maintain it at 700 or even higher. Keep your balance-to-limit ratio below a third and keep a close eye on your credit reports.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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