Lack of Credit

I’ve been reading a lot about our current financial situation and what Congress is trying to do to fix things, and something in a recent article caught my eye.  This article discussed what we should know about the current financial crisis.  There was a lot about WaMu and FDIC and SIPC insurance, but the point that caught my eye was about credit.

According to economists, consumers trying to borrow money for a loan or a home or trying to get a credit card might find it much more difficult.  One key point here was that credit card companies are less likely to take on “riskier clients,” and are “getting tougher on who they lend money to.”

This… doesn’t seem like the world’s worst idea.  Of course, I realize that there are some people who are using their credit cards just to get by – they use them to buy food and pay bills.  But there are many more people who are spending on their credit cards because they can.  Maybe it’s spending on big ticket items, like a new television or video game system, or maybe it’s a lot of smaller expenses, like frequent dinners out.  Either way, taking a second look at people in this situation who are looking at getting new credit cards might not be a bad idea.  Maybe this is what we need to teach us how to spend properly.

It may also be harder for people to get mortgages due to stricter lending requirements.  I was listening to a co-worker talking the other day and he was saying that when he bought his home 25 years ago, he couldn’t imagine not having a 20% down payment.  According to what he knew, that was just what people did.  I’ve heard similar from my parents.  Of course, even if you factor in inflation, a 20% down payment now is more than a 20% down payment in the early 1980’s.

This also doesn’t seem like a bad idea to me.  Sure, it means that people will have to save that much more before buying a home.  Or they will have to buy a smaller home.  But I would think that stricter lending requirements make it that much more likely that a person will be able to continue to make their mortgage payments and not risk foreclosure.

I do realize that this will hurt people, and I don’t want to sound callous.  But maybe if the bank or the credit card company isn’t willing to take a risk on you, you should take a second look at your spending and see what you can do to change.

Megan Smith

Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:

In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance.  It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information.  It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck.  While that was working for me, clearly I needed a better plan.

While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.

Except that’s not what an emergency fund is for.

So I did a lot of research, read a lot of blogs, and decided that I needed a plan.  I needed to budget.  I needed to know what I was spending my money on.  I needed to prepare for the future.

I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way.  I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.