Dear Credit Guy,
You
address many money matters and lately there has, of course, been much talk of
potential seizing of the credit market. With this in mind, could you kindly
advise as to your opinion of whether or not today it is more difficult for
businesses or individuals to get new credit cards or balance transfers? If the
bailout proposal moves forward, do you think it will be easier to get new
credit then? When applying for credit, inquiries are made and there is a
certain impact on FICO scores. What would you recommend to someone (individual
or business) about making application for new credit cards? Do it right now or
sit back and wait until they work out this plan? Your expert opinion would be
greatly appreciated. Thank you in advance.
-- Diane
Dear Diane,
My
question for you would be, "Do you really want to take on additional
credit liability in this volatile, and uncertain economic cycle?" How you
have managed your borrowing and payment history prior to the economic downturn
will far outweigh any ability to obtain new credit in this current cycle.
Remember this is just that, a cycle. Things will get better. They always do. We just don't know how long it
will take for our resilient economy to come roaring back stronger than ever.
The
short answer to your question is, yes, I believe it is more difficult now than
it was six months to a year ago to qualify for new credit in the form of a
credit card. It is also way more difficult to obtain a home mortgage or a home
equity loan. The days of a 0 percent down payment and a low FICO score qualifying
for a home mortgage are gone. That ship has left the dock. The credit cycle has
been tightening for quite some time and the recent activity on Wall Street and
the pending bailout has increased it to close to the complete seizing that you
mention in your letter.
If
you really feel you need access to additional credit with a credit card, I
would wait until the "bailout" or economic rescue package has been
finalized and the dust settles somewhat before applying.
My
recommendation is to review your finances carefully and ensure that you are
protected as much as possible from any negative consequences of this current
credit cycle. Below are some things to consider:
Credit
card agreements can be changed by the card issuer for many different reasons. Be
aware that many issuers may decide to lower credit limits in an effort to
minimize their exposure. What this means for a cardholder is that you will have
less access to available credit and your credit score may decrease due to an
increase in your credit used versus credit available ratio.
A
possible decrease in available credit means you are more vulnerable if you rely
on credit for emergencies. If you have not started an emergency savings
account, now would be a great time to start. The goal is to have three to six
months of living expenses available for unexpected expenses.
If
you are using credit to extend your income, stop immediately. Your credit
supply may soon run dry and adding to a debt load right now could be
disastrous. Create a spending plan and bring your expenses in line with your
income. If you need help doing so, contact a reputable credit counseling agency
that can review your finances and assist you with creating a workable spending
plan.
Diane,
my advice to you would be to tighten your belt and weather the storm. I hope
you will refrain from obtaining any new credit cards for the time being.
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
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