What caused the credit crunch?

In fact being turned down for an additional loan from the same lending institution may do well to your credit score. It is better to be turned down for an increase in line of credit for your credit card than to look for an easy solution to accept a new credit card offer. Only after using the same credit card for over two years you start to actually build up a positive credit history. Opening several credit card accounts lowers your credit rating. Similarly refinancing your house from the same lender builds up your credit rating (because the length of credit accounts matters most) where as going for a second mortgage from another lender lowers your credit rating. The sever competition among credit card companies and other lending institutions have led to borrower accepting multiple loans from multiple lending institutions resulting in borrowing beyond one’s repayment capacity. Borrowers assumes that she shall be able to switch lending institutions with better repayment options in future but this may back fire in most of the instances.

Multiple lending institutions are chasing your small income assuming that they shall be able to either garnish your wages or liquidate your house in case you default on your loan installment. When these multiple institutions realize that the money advanced by them far exceeds the net worth of the individual than they ask their lawyers to file for the bankruptcy of the borrowers that finally results in getting back only few pennies per dollar. This done at the same time by the entire lending institutions World over has resulted in credit crunch that is now being handled by different countries by pumping in more artificial money into the financial system. The technical term given to lending money to risky borrowers is called sub-prime lending. Sub-prime lending does not mean lending to the poor or low income group citizens. Most of the default on sub-prime lending has resulted on jumbo or bigger loans taken by the upper middle and upper income group citizenry and thus causing a global credit crunch and a marked loss in productivity.

For some reason in spite of having bad credit score these individuals keep getting new credit card offers and they keep borrowing and now we see a global credit crisis. Perhaps money was or is too easily available to the lending institutions other wise what other reason could there be for appointing thousands of lending brokers/agents and asking borrowers to take own maximum they can borrow against their homes or personal credit scores.

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