…of some new adjustments –
I know there have been discussions of credit cards and scores and such – this isn’t going to make life easier for some –
http://www.msnbc.msn.com/id/25419005
….Card companies are reducing borrowing limits for tens of thousands of consumers, which then can lead to lower credit scores….
…revolving credit usage — which includes credit cards — accelerated sharply to a year-over-year growth rate of about 8 percent in recent months. That’s the fastest rate in seven years and well ahead of the 2 to 3 percent rate of growth from 2004 through 2006 when home equity lines of credit were a bigger source of cash for consumers,…
…Here’s how that happens: Let’s say a cardholder has a credit limit of $10,000 and a balance on the card of $4,000. The card company worries that large balance may increase the prospects for default, so it lowers the credit line to $5,000. But in doing that, it completely changes what is known as the credit utilization rate, raising it from 40 percent to 80 percent. That is then factored into the calculation of one’s so-called FICO credit score, which measures creditworthiness…
…According to the Comptroller of the Currency, one of the government agencies that regulate U.S. banks, companies must notify cardholders at least 15 days in advance before making changes in the terms of their account, such as lowering the credit limit. But they don’t have to explain how that could change an individual’s credit score.
That puts the burden on consumers to watch out for this. They better so they don’t get blindsided.
Replies
Credit cards aren't all of it. I've had a $50,000 line of credit with my bank for a few years on May 22 they sent me an invoice informing me that they were pulling the line and to mail a check for $50,000 by June 6th. I called the bank and was told that the banked who did the loan "was no longer with the bank" and my account had been re-assigned to a banker in another town. I called him and left a message on his answering machine Friday, Monday, Tuesday, and Wednesday without a return phone call. I had raised the cash but it was going to be a tight situation to pay it out and meet cash flow with a new house coming out of the ground in rainy weather. Thursday was the 5th, the guy called me back, I offered to give him $25,000 now and $25,000 "later." He countered with a 90 day "no fault, no blame" extension. So I'm covered since I would have paid the line off by august anyway and won't likely need to hit it again until January 09 if my cash flow cycle follows pattern.
I'll be moving my line to another bank no doubt but other guys in our town are getting their lines pulled and it's putting them out of business. It's wild times out there. Glad I'm not a banker.
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"You cannot work hard enough to make up for a sloppy estimate."
They are trying to raise as much cash as they can to cover their reserves. Banks can only lend money if they have a certain percentage of cash on hand which serves as their reserves to meet federal guidelines. The rate of default has put them in new waters. Before they simply sold a few of their foreclosures at a loss and that non performing loan was taken off the books. Now, their ratios are so bad they have to raise cash or they will find themselves in default of the lending guidelines...which basically puts them out of business. I believe that the situation will get much worse especially with the upward pressure of the price of oil and all the inflation attached to it. I'm actually expecting much, much worse and the recovery might be substantially worse than anything we've ever seen.I really, really, really hope I'm wrong. Bob's next test date: 12/10/07
you know the more i read your posts the more i think you may be right.
what to do when it gets like that? is inflation gonna kill us?
what is going to happen? how is it going to play out? i think that story would make a great screenplay/movie right now, and you are a perfect contributing author!
Blue,
I share your pessimism on future prospects. Frankly I can see no way out of it with the currant economic situation..
I spent much of last week cold calling accounts which might have had a position for me. These were people I'd known for years and in some cases done business with.. They agreed to meet with me only because of that relationship and to a man they were all pessimistic not only about hiring but also about their chances of either staying afloat or even employed.
We've exported too many jobs and with the currant tax situation where companies can get a tax cut by simply closing a plant and moving it offshore. Once those factories close the factories that supplied them are left without a customer base. That puts pressure on them to even survive.
When White closed their refrigerator plant in St. Cloud. 14 suppliers went out of business. Now Maytag has done the same and several others are closing up as well.
The problem is the equipment they used is now flooding my markets and driving prices down below the point of sustainability. Dealers are now stuck with high inventories during a period of extremely slow sales. They have inventories of equipment that have had birthdays (plural) without a buyer. That adds dramatically to the dealership cost due to interest accural. Industrial forklifts have become a commodity rather than any sort of brand loyalty so bottom line it's cheaper for a customer to take somebodies new forklift than a 2 year old (new) forklift. So the situation continues to worsen.
That's my microcosim of the state of industry. When you add the problems of GM, Ford, Chrysler, etc.. to the mix. Plus all the difficulties in the airline industry and other troubled businesses it's sure easy to see that the economy is deeply damaged and will need some drastic repairs to recover..
Frankly those repairs need to come from politicians and I don't see any chance of that happening with either candidate.. Not the way they are talking..
hey Frenchy, why don't you buy a bunch of those forklifts and take them to houston?
I read the other day that it is a boom town! (71000 new jobs this year)
Houston already has enough equipment there, even with the boom. Austin is rolling too but there is equipment in all the yards. There's no shortage because it's steadily been brought in to meet the demand as the demand grew over the years. Where did all the equipment go that used to be in the subs in Detroit? I used to see thirty forklifts and 20 cranes in some of the big subs in Detroit. There was equipment in every sub, forklifts, cranes, excavators, etc. Now, it's all gone. It must be in Houston. Bob's next test date: 12/10/07
i wonder what happens to people that are unable to come up with the cash when the bank calls the note?
that could wreck you in the blink of an eye, instant out of business and bad credit rating.
When the banks put people out of business and into bankrupcy in an inflexible attempt to raise cash to cover their losses they create a situation similar to "burning the barn down after the horse has gone" (and remember this whole thing was set off by them refusing to relent on ARMs with index clauses that put people into mortgage payments they couldn't afford at exactly the same time that fuel prices went through the roof which led to a glut of homes on the market, bankrupcies, rising un-employment and falling property values...)
No doubt I'm over-simplifying a complex situation but it seems to me that if they had decided to tough it out and relent on indexing all those ARMs to a higher rate then folks might not have gone into forclosure and wiped out the market and the banks might not have had all these bad loans and needed to call in their money and drive so many good businesses into bankrupcy.
I don't see a building crises here so much as a banking crises. We're all culpable (except me of course, and you.)
We builders thrived on the housing bubble as much as the bankers did. Now were all getting a much overdue "adjustment."
My wife sees it all so clearly, I told her what was going on and her response was "well, we'll just have to stop borrowing money and run a tight, all cash, business." End of discussion.
Suck it up and make a new plan.
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"You cannot work hard enough to make up for a sloppy estimate."
"that could wreck you in the blink of an eye, instant out of business and bad credit rating."
yes it could and very easily.
I've told the long drawn put story here before, but about 4-5 yrs ago I ran into something similar. Basically a computer glitch put me on the bad side of AmEx.
at the time I had a gold credit card and an open line of credit and perfect credit.
card balance one month was 1,800 and line of credit was $9,900.
I was 1/2 way thru a big, to me, job ... roughly $125K
their computer misappropriated the payments between the two ... seperate ... accounts. Both paid in full from my end ... just wrong amounts went to wrong accounts.
Looked like I over paid one and defaulted the other.
in the end ... the line of credit was "called in".
I didn't have close to $10K ... so after all the BS ... we settled on payments.
Paid everything off in 7 months ... the given deadline ...
only to find out afterwards that even meeting their agreement, I was still reported to the credit agencies. Totally screwed my credit, aside from business, personal , family finances.
I went from top tier credit, mostly unused ... to bottom.
at the time, I only ran one credit card ... amex.
only good thing is the bad credit rating and really learning to hate credit cards got us out of the idea of buying anything on credit. In todays economy, a blessing in disguise.
Jeff
Buck Construction
Artistry In Carpentry
Pittsburgh Pa
The credit scoring system is another banking scam. It was created by and is operated by the very banks that use it to their advantage.
fukers....
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"Thank goodness for the Democrats! If you are terminally unemployable, enjoy living off of govt welfare and feel you owe society nothing you're in luck: there is a donkey waiting for you."
yes i agree,
no love loss here for the banks either, and that is before i read posts from people that got shafted worser than me.
i can't imagine how anyone can take the banks side against anybody, like they do in the foreclosure threads.
reminds me of the old joke about the sultan who catches the guy in with the harem. the penalty is to be buried up to the neck in the bull ring and then they loose the bull. as the bull runs over the guy on a goring pass the guy bites at the bulls balls. the sultan yells "fight fair"
i don't think it is possible to be unfair with a bank, and cheer every poor shmuck for every blow they get in.
We would never allow any of our friends or family scam us the way banks do every day.
I need to go back and read your foreclosure story, I ran out of time last night....
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"Thank goodness for the Democrats! If you are terminally unemployable, enjoy living off of govt welfare and feel you owe society nothing you're in luck: there is a donkey waiting for you."
Why is your story deleted?.
.
"Thank goodness for the Democrats! If you are terminally unemployable, enjoy living off of govt welfare and feel you owe society nothing you're in luck: there is a donkey waiting for you."
This is nothing new for banks and borrowers. In the late '80s I worked in the same business park as a small company and got to know the founders. We often loaned them employees as they grew larger and needed help in various areas. Over lunch they mentioned a new, $75K revolving line of credit that would finally let them hire more people and expand.
Then one day their bank decides to trim the sails and demands they pay down the line of credit within 60 days. No reason for them to call in the loan other than they could. Within a week they laid off half of their employees (some just hired), and a month later they were out of business. The president ended up losing his house (and wife), and the other two founders were hit financially too as they had all personally guaranteed the loan.
That was a lesson for me and my small company -- the fine print in commercial loan documents sometimes gets used, even when the borrowers are not in default! Oh, and one more: bankers are mostly heartless liars.
Isn't this why relying on a line of credit instead of being properly capitalized is a poor business practice?Wait. Let me rephrase that.Isn't this one of the reasons for a business to be capitalized instead of relying on a line of credit?
Edited 6/28/2008 9:23 pm ET by jimblodgett
Jim, I agree to a point, but guys who are building spec, or custom homes for owners with construction loans are probably going to need credit. I've personally gone unpaid (accidentally) by a client and really wished I had a line of credit.
Jim, without credit, our country would be functioning like all the other third world countries. Credit has built our water facilities, sewer systems, highway systems etc. Credit is not evil. Bob's next test date: 12/10/07
Jim
The wise use of credit has enabled many people to become extremely wealthy. Henry Ford borrowed money to start his empire as did Bill Gates and countless others..
In fact most business school models assume that you start out undercapitilized.
In fact most business school models assume that you start out undercapitilized
I've had people tell me "you need to have alot of money to start a business".
I disagree. I think a business is like a baby, if you wait till you can afford one, you'll never get one.
I'm not very liquid right now but so far i'm surviving. I'd much rather be in better shape as it would seem the U.S. is coming to an end, but at the end of the day i'm not working for someone else and i'll figure it out eventually.
The houses are finally finished completely so I can stockpile the cashflow.....until the taxes adjust of course.:>)
Its always something.
I'm not saying credit is bad. I agree that it can be a tremendous tool for building wealth. I use it and rely on it. But there are different types of credit for different uses, right?
What I ask myself is - If I had to, could I repay this debt in 30 days? If not, what would I lose (what collateral did the lender require?) Is the reward of the borrowed money worth the risk of losing the collateral?
Every time a business borrows money to cover operating capital shortfalls it increases it's overhead by the ammount of interest due on that borrowed money. Does that sound like a healthy business model to you?
Edited 6/29/2008 11:50 am ET by jimblodgett
"Isn't this why relying on a line of credit instead of being properly capitalized is a poor business practice?"
Yup.
in my case it forced me to change the way contracts, and specifically payment schedules, were written.
that little life lesson hurt me short term, helped me long term.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
Thats the way I'm looking at it too but sometimes there are bigger fish not being caught because of this aversion to credit. I'm not afraid of credit. It's a tool. I think a table saw is much more dangerous. Bob's next test date: 12/10/07
David;
The banks have been doing this for years. One of my relatives was great at pulling every ounce of equity out of his assets and constantly refinanced his properties. About three years ago, the banks started to call his cards in. They lowered the limits and doubled the payments. His finances went south in a hurry.
I first saw it happen ten or fifteen years ago in another commercial situation when a woman was getting divorced. When I read the fine print and found out all of the power that the banks had, I learned that lesson in advance. The one that caught her was that they could lock up all her accounts if one loan was in default.
Can't trust the bums...
Don K.
EJG Homes Renovations - New Construction - Rentals