Comments on: The State of Credit, April 2009 http://www.consumerismcommentary.com/2009/04/21/the-state-of-credit-april-2009/ A premiere personal finance blog, established 2003. Within, Flexo discusses his own experiences with money, and he and other authors comment on a wide range of personal finance topics. Sat, 21 Nov 2009 16:42:00 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Mike L http://www.consumerismcommentary.com/2009/04/21/the-state-of-credit-april-2009/#comment-192962 Mike L Wed, 22 Apr 2009 12:24:57 +0000 http://www.consumerismcommentary.com/?p=5986#comment-192962 Here is my personal example: My FICO score was 751 when: Amex credit limit was slashed from 8,000 to 6,000 & I have a 5,000 balance. Bank of America credit limit was slashed from 12,700 to 6,500 & I have a 0 balance. Chase credit limit stayed the same at 7,500 & I have a 0 balance. I'm currently looking for a house and this news will greatly reduce my score because now instead of my ratio being 18% (5,000 balance/28,200 limit), it will be 25%. NOT HAPPY! Here is my personal example:

My FICO score was 751 when:

Amex credit limit was slashed from 8,000 to 6,000 & I have a 5,000 balance.
Bank of America credit limit was slashed from 12,700 to 6,500 & I have a 0 balance.
Chase credit limit stayed the same at 7,500 & I have a 0 balance.

I’m currently looking for a house and this news will greatly reduce my score because now instead of my ratio being 18% (5,000 balance/28,200 limit), it will be 25%. NOT HAPPY!

]]> By: Jay http://www.consumerismcommentary.com/2009/04/21/the-state-of-credit-april-2009/#comment-192958 Jay Wed, 22 Apr 2009 06:53:38 +0000 http://www.consumerismcommentary.com/?p=5986#comment-192958 Very prudent write-up and relevant to continually keep an eye on. We've been very interested in this whole situation and have actually postulated that such a decrease in available credit (thus hurting your utilization ratio) could really put a negative hit on FICOs. In particular, we've focused on FICOs that are in the fair/poor category, especially those teetering on the edge of falling to the sub-prime level. If we essentially push a bunch of new consumers down to sub-prime, their future access to credit becomes impaired, hindering both their liquidity and personal balance sheet. Add in the fact that many lenders are outright closing accounts as well (affecting the history portion of FICO calculation), and you could have a big mess of dings on many consumers FICO scores. We've seen all these institutions be downgraded and have poor balance sheets/credit ratings. Essentially, you now have a 'downgrade' of the american consumer's credit rating. We elaborated on the whole issue in depth here: http://www.marketfolly.com/2009/03/downgrading-american-consumers-credit.html Very prudent write-up and relevant to continually keep an eye on. We’ve been very interested in this whole situation and have actually postulated that such a decrease in available credit (thus hurting your utilization ratio) could really put a negative hit on FICOs. In particular, we’ve focused on FICOs that are in the fair/poor category, especially those teetering on the edge of falling to the sub-prime level. If we essentially push a bunch of new consumers down to sub-prime, their future access to credit becomes impaired, hindering both their liquidity and personal balance sheet.

Add in the fact that many lenders are outright closing accounts as well (affecting the history portion of FICO calculation), and you could have a big mess of dings on many consumers FICO scores. We’ve seen all these institutions be downgraded and have poor balance sheets/credit ratings. Essentially, you now have a ‘downgrade’ of the american consumer’s credit rating. We elaborated on the whole issue in depth here: http://www.marketfolly.com/2009/03/downgrading-american-consumers-credit.html

]]> By: Rassah http://www.consumerismcommentary.com/2009/04/21/the-state-of-credit-april-2009/#comment-192952 Rassah Tue, 21 Apr 2009 19:51:02 +0000 http://www.consumerismcommentary.com/?p=5986#comment-192952 In the post, is "October 2008" supposed to be "October 2009?" Working in a government bank myself, I can sort of understand what the banks are dealing with. On the one hand you have the customers, whom the populace wishes to serve, but on the other you have investors, who want at least all their money back, if not a good return on their investment. If the banks lend out more money, they'll make one group happy, but they'll no doubt end up in a similar trouble they were in before. If they cut down on lending and focus on good customers, they will make better/safer returns and make the investors happy, but will make the populace angry. I deal with that in my government organization, where we use money from bonds we sell to investors to fund low-interest mortgage loans to low income families. We can make either the investors happy, or the politicians/populace happy, but oftentimes it's difficult to make both happy. In the post, is “October 2008″ supposed to be “October 2009?”
Working in a government bank myself, I can sort of understand what the banks are dealing with. On the one hand you have the customers, whom the populace wishes to serve, but on the other you have investors, who want at least all their money back, if not a good return on their investment. If the banks lend out more money, they’ll make one group happy, but they’ll no doubt end up in a similar trouble they were in before. If they cut down on lending and focus on good customers, they will make better/safer returns and make the investors happy, but will make the populace angry. I deal with that in my government organization, where we use money from bonds we sell to investors to fund low-interest mortgage loans to low income families. We can make either the investors happy, or the politicians/populace happy, but oftentimes it’s difficult to make both happy.

]]> By: Rassah http://www.consumerismcommentary.com/2009/04/21/the-state-of-credit-april-2009/#comment-192951 Rassah Tue, 21 Apr 2009 19:44:40 +0000 http://www.consumerismcommentary.com/?p=5986#comment-192951 I think it was "credit limit" that was decreased by 5%, not the FICO score. I think it was “credit limit” that was decreased by 5%, not the FICO score.

]]> By: SJ http://www.consumerismcommentary.com/2009/04/21/the-state-of-credit-april-2009/#comment-192949 SJ Tue, 21 Apr 2009 16:10:40 +0000 http://www.consumerismcommentary.com/?p=5986#comment-192949 Hrm.... does it bother anyone else how dependent on credit life is? Isn't it the loaner's rights to only loan money profitably? I could easily operate w/o credit (might be a slight hassle switching things over...) But then again I don't have a mortgage or house or what not. Hrm…. does it bother anyone else how dependent on credit life is? Isn’t it the loaner’s rights to only loan money profitably?

I could easily operate w/o credit (might be a slight hassle switching things over…) But then again I don’t have a mortgage or house or what not.

]]> By: Roshawn http://www.consumerismcommentary.com/2009/04/21/the-state-of-credit-april-2009/#comment-192947 Roshawn Tue, 21 Apr 2009 15:00:09 +0000 http://www.consumerismcommentary.com/?p=5986#comment-192947 I find it very intriguing that the median FICO score of those affected by the credit limit decreases was 770. Perhaps, even more interesting was that the FICO score only decreased by 5% with such a significant decrease in credit availability. Still, I guess if someone is on the low end of good credit (i.e. 720), a 5% decrease could bump him or her down to average credit. I find it very intriguing that the median FICO score of those affected by the credit limit decreases was 770. Perhaps, even more interesting was that the FICO score only decreased by 5% with such a significant decrease in credit availability. Still, I guess if someone is on the low end of good credit (i.e. 720), a 5% decrease could bump him or her down to average credit.

]]> By: Baker http://www.consumerismcommentary.com/2009/04/21/the-state-of-credit-april-2009/#comment-192941 Baker Tue, 21 Apr 2009 12:38:07 +0000 http://www.consumerismcommentary.com/?p=5986#comment-192941 This is a neat concept and something you should do more often. I enjoy having all these thinks all in one place! This is a neat concept and something you should do more often. I enjoy having all these thinks all in one place!

]]> By: Smithee http://www.consumerismcommentary.com/2009/04/21/the-state-of-credit-april-2009/#comment-192939 Smithee Tue, 21 Apr 2009 12:25:44 +0000 http://www.consumerismcommentary.com/?p=5986#comment-192939 Thanks for the update and the compliment! Thanks for the update and the compliment!

]]> By: The Weakonomist http://www.consumerismcommentary.com/2009/04/21/the-state-of-credit-april-2009/#comment-192938 The Weakonomist Tue, 21 Apr 2009 12:08:58 +0000 http://www.consumerismcommentary.com/?p=5986#comment-192938 My credit card company just sent me some mail saying my credit limit has been increased. Not that I've ever even used a tenth of my available credit, but in these bad times I do take that as a good sign. This was a well written summary, and I like the premise: "state of credit." My credit card company just sent me some mail saying my credit limit has been increased. Not that I’ve ever even used a tenth of my available credit, but in these bad times I do take that as a good sign. This was a well written summary, and I like the premise: “state of credit.”

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