Consumer credit has declined in the past months. Changes on credit standards or policies have changed to the negative sides. The credit limits are lowered, the interest rates increased and the limitations on credit scores and eligibility requirements have contributed to the decrease. Though, not all of the banks have changed their credit restrictions, there was an increase of the number of banks who had the changes. Another reason is customers are also making better towards their credit card bills. Many people are paying on time and many are limiting their purchases by availing only priority things. Economists say that the consumer credit won't be increasing for the next few months and will continue to decrease.
Asked whether it were the banks or the consumers that decreased the credit card debt, experts state that the answer lies on the relationship of the two. The banks have limited their lending standards forcing consumers to cut off debts by paying on time. Consumers have to make timely payments to evade higher interest rates. They likewise need to limit the use of their credit to improve their credit scores and be still eligible for future credit. The cause seems to point at the banks. However, the banks have their own reason. The new Credit CARD Act has made their restrictions limited and the banks are forced to implement these on their operations.
The decrease has created a positive impact on the economy, economists point. The consumer spending has increased over the first quarters and thus increased the nation's GDP. This also made banks to have lower default risks. Consumers are also being smart about the use of their cash.
Many still claim that the effect may have effects on the consumers and the banks as well. Consumers, especially the unemployed, must bear with the fact that since their credit limits are lower and that their spending is high, their credit score may be lowered, too. Considering this, credit score is a basis from which lenders have to decide whether to approve or not loan applications. Even if consumers are paying on time, the high utilization rate and the lowered credit availability will hurt their credit score. Banks on the other hand have complained that they are getting fewer customers from which they are getting their resources for their investments. They are forced to restrict credit due to the new credit reforms and the economic situation.
Economists state that everybody must be optimistic. Things are going well and in the long run, less suffering will be experienced. Though unemployment rose, many jobs are still increasing sharply and may possibly even meet the unemployment peak or very near to it. The positive job growth will increase income which in turn will be enough to cover their increased spending. It will also be easier to buy things more, such as home appliances, since credit has weakened, thus making the consumers' current asset ratio high. That is, higher savings and lesser debts.