The Credit Game: Understanding the Difference between Obtaining and Lending Credit

**Blog Post Breakdown:**

– The tug of war between consumers and lenders
– Two critical reports: **The Federal Reserve Bank of New York’s “Quarterly Report on Household Debt and Credit” & The Federal Reserve’s “Senior Loan Officer Opinion Survey on Bank lending Practices”**
– Consumer Debts: Increasing without remorse
– Lenders’ new approach: Pulling in reins on credit
– Expected landscape for consumers
– Wise Moves for Borrowers

**Hot Take**:
This is not a doom and gloom moment but rather a wake-up call for borrowers to recalibrate their compass in the financial world. While we didn’t ask for this wild ride, here it is, and the best we can do is strap in, stay informed, and take control of our financial health.

## **The Credit Tug of War: Borrowers vs Lenders**

**The Battle of Borrowing: Two Key Reports Speak out**

Two pivotal reports hit our desks this February 2024. One from the *’Federal Reserve Bank of New York’* called *’Quarterly Report on Household Debt and Credit’* and another from the *’Federal Reserve’* itself, dubbed the *’Senior Loan Officer Opinion Survey on Bank Lending Practices’*. Simplified? They carry a substantial message: borrowers and lenders are drifting apart on reconciliation ice, and guess what? It’s the borrowers who might end up under water.

**Consumer Debts: The Merry-Go-Round That Won’t Stop Spinning**

American consumer debt isn’t backing down — it’s been growing consistently for a whopping eleven years! Even the climbing interest rates, which flew by nearly 7% since mid-2020, glared back with a shrugged shoulder. Infactwhat we’re seeing is credit card debt growing at a speed never witnessed before in history—a double-digit annual increase.

Undoubtedly, credit card debit is the black sheep in the financial world. With an interest rate that stands about 10% higher than your ordinary personal loan rate, it’s also 14% heftier than the conventional auto loan rate. And yet last year, while the overall consumer debt grew by 3.57%, credit card debt skyrocketed by 14.5%.

And, behold! The tale of subprime credit card debt. Persons who struggle with poor credit scores are getting boxed in with exorbitantly high interest rates, yet they continue to borrow more. As per data from TransUnion, the growth witnessed in credit card balances for subprime borrowers was the highest. These borrowers are indebted 32% more than what they were just a year ago!

**Lenders Pulling the Reins**

Sensing a surge in the volume of late payments (which has been on a rise for eight consecutive quarters), lenders have started getting jitters about the increased risk in lending money. Hence, they’re pumping the brakes on their lending standards.

According to the Fed’s loan officer survey, these limitations on borrowers come in multiple forms—trimming credit limits, requiring higher credit scores, and inflating credit spreads to charge higher interest rates, especially on those poor credit-score customers.

**Forecasting a Stormy Season for Borrowers**

If we were to string together these two revealing glimpses into the behaviour of consumers and lenders, an obvious conclusion emerges: a brewing storm for borrowers. The sheer speed at which debt balances are rising indicates consumers’ enthusiasm to keep borrowing, and lenders are slamming on the brakes. Thus, the tighter lending standards will jolt borrowers who are used to an uninterrupted credit supply, making the borrowing game harder and costlier.

**The Playbook for Borrowers’ Survival**

Consumers, the sword might be hanging but it’s time to pick up your pens instead. To pounce back in 2024, here’s your game plan:

– Craft a budget that runs without depending on new credit.
– Sprint towards driving down your loan balances with extra payments.
– If borrowing becomes necessary, go bargain hunting for the best deals in loan or credit card options.
– Consider swapping high-interest debt into cheaper credit forms, such as personal loans, home equity loans, or balance transfer credit cards.
– Invest in learning techniques to amplify your credit score. Remember, the key to better credit terms is a healthy credit score.

As we piece together the puzzle, it’s crystal clear that the gears of consumers and lenders are grinding in opposite directions. It’s crucial to remember one thing, though: without lenders, the credit world would crumble. So, ensure we’re on the better side of their books.

## **Wrap Up**

The game of credit granting versus obtaining reclaims attention. This isn’t a gloomy raincloud hovering over our finances, rather a much-needed wake-up call for borrowers to invest in financial health improvement. This potpourri of a situation is beneficial as it kick-starts borrower’s pursuit of better money management habits. So, let’s put on our raincoats, step into the financial rain, and dance our way to healthier financial hygiene.