Banks Are Tightening Up On Extending Credit

One of the biggest changes you will see from the fallout of the Wall Street meltdown is banks severely tightening up on their lending practices. Not only will you have a harder time getting a home loan, but you’ll have a much harder time getting a car loan, line of credit, and home equity loan.

Here is an excerpt from a CNN article:

Consumers whose credit rating teeters between ‘good’ and ‘not so great’ are the ones getting squeezed the most, added Carole Merchant, a fellow Bank of the West executive vice president in the company’s indirect lending business.

“Will loans be available for people who have some sort of credit blemish? That will probably remain more difficult,” said Merchant.

Given the current state of the economy, banks such as the San Antonio, Texas-based Cullen/Frost (CFR), have been forced to withdraw lines of credit from some customers.

Is this is a good or a bad thing? I think it’s both. It’s good in the sense that it will keep consumers in check from taking out loans that they can’t afford to pay back. However, in terms of homeownership, it will severely undercut the lower middle class. I hope that the amount of car loans taken out does decrease, because I get numerous emails from readers about their car dilemmas. Becoming upside down on a car loan is extremely common, and it puts people in a hard financial place. Home equity loans are often spent on things like vacations, furniture, and spending sprees, and the consumers rarely put the money back into their home.

The bottom line

If you want to borrow, you must start repairing your credit today. Underwriters are creating stricter lending guidelines. They want decent credit history, stable income, and significant assets. Building more assets than liabilities in your lifetime is the entire goal of financial planning. If you can focus on this one thing, you will come out way ahead of many people in your lifetime.

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