Your Credit Card Application Didn't Pass? - Blame the Housing Market
As we are getting closer to the year of 2008, we hear more discussions and predictions about the possible go of things on the US credit card market. The fickle nature of the credit card industry leaves no doubts as to the coming changes, but financial experts predict that most of them will turn troubling if not disappointing.
The natural law is that nothing in this world comes without its reason and the reason for the not so promising forecast about the credit market of 2008 is the sub-prime mortgage lending practices and their crash.
So, who will suffer most and what are the possible solutions for alleviating the unfavorable effect of predatory lending and the crash?
If you observe the state of play on the mortgage and credit card lending market, you must have noticed that it has been a matter of a finger snap to get a house or be approved for a credit card. Approvals were possible even if an applicant had a poor credit score and was bad credit risk on the whole.
Experts say time has come for the easy credit to be repaid because the reckless lending of the recent years has led to the loss of revenues. Being mostly self-profit by nature, lenders made a serious mistake of issuing credit to all potential borrowers regardless of their credit history and documentation.
What are the lenders doing to recover from the losses? It is simple - they are jacking up mortgage rates.
The most disappointing thing in this situation is that the housing market crisis will tell on all credit consumers - those in the sub-prime as well as prime segment of the market. That's how it goes. The increased mortgage payments are very likely to affect customer's incomes, making them rely on their credit cards for everyday purchases.
It is not thus difficult to predict that lots of home buyers or owners will default on their credit cards some day. Taking all the delinquent and defaulted credit card payments together, it is no less difficult to imagine the amount of the revenue loss banks may suffer.
So, a bank looks to protect its profits, which is done by skyrocketing credit card fees and interest rates. This is how the sub-prime lending crash affects credit card industry with its countless customers and will continue doing it in 2008.
Credit card companies will become much stricter and less generous in issuing credit cards. In case a borrower doesn't meet the requirements, his or her application will be turned down. It is expected to put an end to the predatory lending policies companies have been exercising.
Even good credit cardholders may notice an increase in the credit card rates and fees. In connection with this, all cardholders are advised to pay off their balances in full and on time to avoid sinking in debt in 2008.
Poor credit mortgages will stay in the past and home seekers will have to have a solid credit score and long credit history to be approved. No more easy credit, no more revenue loss. Credit companies are correcting their mistakes, credit consumers will have to pay for that.