Changes in Credit Require Change in Attitude
The days of ‘easy credit’ may be a thing of the past…
With increased pressure on Washington to regulate the credit card industry and mounting personal and worldwide financial stress, credit is becoming harder to come by and more costly to use. American consumers are carrying nearly a trillion dollars of credit card debt according to Federal Reserve estimates. This ongoing love affair with credit will have an impact that affects every consumer. Feeling the least impact will be cardholders who are able to pay off their balances each month. But the hardest hit will be nearly 50 million Americans who rollover a balance from month-to-month, many struggling in a depressed economy to cover high gas, food, healthcare and housing costs.
When credit cards appeared in the 1960s, they were hard to come by and widely considered a status symbol. But during the 80s and 90s, credit cards became commonplace. “Credit card companies had money, rates were low and it became possible for every family to have one,” said Carol Kaplan, spokeswoman for the American Bankers Association.
But changes in the credit card industry are making it harder for consumers to transfer balances, receive higher credit limits or even get a card at all. Demanding higher credit scores and stricter standards, credit card issuers are reacting to economic conditions that make it tougher for cardholders to make payments. “More and more credit card users are having difficulty paying more than the minimum on their credit card balances,” noted Standard & Poors. The aggressive teaser rates of 0% interest for 12 months (with no fees) that were once so prevalent, are becoming harder to find and may disappear completely in the near future.
Consumers will have to make some big adjustments, especially working families who use credit to stretch their budget to cover the basic necessities. Federal data shows that the average American family has had their income decrease by more than $1,000 between 2000 and 2007, while the cost of everyday needs that include gas, food, housing and health care have risen more than $4,000. Cardholders who pay their balance off each month will be relatively unaffected; but those who carry high balances or who have used balance transfers to manage their debt will find things much tougher.
But there are ways to stay ahead of the game, many common sense actions like never missing a payment and paying more than the monthly minimum still hold true. Other options include requesting automatic payments from your checking account to avoid late or missed payments and keeping your debt-to-credit limit ratio below 30%. Keep unused cards active by making token charges annually to prevent the issuer from canceling it for lack of use. Use your card only for emergencies and pay off any new charges at the end of the month to avoid worsening the situation. And probably most important of all, if you’re in a deep hole, quit digging.
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