Personal Finance

Is the Credit Crunch Over?

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Forecasting experts evaluate many different data elements and trends to try to predict if the economy is in a recovery trend or not. Two important items analyzed are consumer credit behaviors and how much new credit is being extended by lenders.

During a recession, many consumers (in general) reduce their levels of borrowing — instead trying to save more, as there is more risk of job loss and increasing expenses. They hold off on buying a new car or take a “local” vacation as a means to save money. At the same time, lenders will generally tighten their lending criteria to hedge against bringing incremental potential risk onto their books. These two patterns reduce economic activity and can prolong a recessionary period.

Now, it appears that consumers are starting to use more credit and are opening more credit, according to a report recently published by Equifax (Equifax is one of the three big credit reporting agencies in the U.S. — along with Experian and TransUnion).

According to the report:

  • The amount owed on non-mortgage credit obligations reached a total balance of $2.43 trillion in June 2012 (an increase of more than $70 billion from the same time a year ago).
  • They also report an increase in new credit being open (an increase in new account total credit limits of $30 billion from April 2011 to April 2012). The financing of more automobile purchases is a key driver behind the increase.
  • Interestingly, people are carrying less revolving debt (credit card and retail card) today compared to the peak in October 2008 (down by 22%), but is starting to inch up ($3 billion high in June 2012 compared to the previous month).

At a macro level, these are encouraging early indicators that a recovery may be forthcoming. On a micro level, be sure to follow these simple best practices to ensure you have a strong credit rating in “boom or bust” times:

  • Always pay your bills on time.
  • Keep your credit debt levels at reasonable levels.
  • Only apply for credit when needed.
  • Monitor your credit reports and credit score. (’s free Credit Report Card gives you a snapshot of your credit, along with a free credit score that you can check any time.)

Image:, via Flickr

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