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.

  • Jake

    I think it’s a good thing. If you’re able to put 20% down and can reasonable afford to pay the mortgage you are requesting I do not think it will be a problem to obtain a mortgage. If you’ve already proven that you should not be loaned money then it will be more difficult.

    This is how it should be – we as individuals and the banks dropped the ball and created a huge mess that we’re all going to start paying for. if everyone played by the unwritten rules this “crisis” would of never happened.

  • DG

    yea they are. didn’t you hear about chickdowntown it was one of those crazy situations where a business really depended on their extended credit line

    my friend applied for one and wasn’t approved. who can blame banks though? tough times!

  • Mac

    Too bad the banks didn’t think to do this a few years ago, it would have saved the financial industry a few headaches, not too mention it would have stopped many foreclosures! It surprises me that it took until hundreds of banks went under before they decided to be more strict on their lending. Obviously it didn’t hurt much as the feds bailed them out. Hopefully there soon will be stronger regulations on the banking industry, but I’m not holding my breath.