Credit Woes Spreading
It was only a matter of time before the current housing problems would begin to spead into other industries and markets. The credit card market, as well as the auto loan market, is now experiencing some of the slow down in credit that the housing markeet is already seeing.
Some of the biggest banks and credit card companies are beginning to see, in very real terms, a slow down in consumers who are able to pay their bills on time and in full. This is raising some red flags with both the banks and the credit card issuers.
An example of this comes from Capital One Financial Corp., which recently increased its estimates for credit losses expected to occur next year. The increase set that number at something just over $5 billion. Part of this increase comes from increased estimates of potential delinquencies on its cards.
This issue may also have a profound impact on the holiday shopping season which is just around the corner. Consumers who are already in deep debt may add to that debt in order to prepare for the holidays. In many ways, it is becoming a vicious cycle.
For many consumers the problems began with the increase in interest rates as adjustable rate mortgages in the sub-prime market began to reset to much higher rates. In some cases, homeowners were looking at monthly payments that had risen so high that they simply could not make the payments. This, of course, let to foreclosures for many of these people and bankruptcy for others.
To make matters worse, prior to the housing market slump many homeowners borrowed all or most of their home equity funds and used the money for less than good purposes. Now that they need that home equity money, they do not have it.
All of these credit payment problems ultimately go back to the banks and credit card companies that hold the loans. Because consumers cannot pay as they should, the banks and credit card companies are taking some big hits and in response are tightening credit for other markets as well, such as car loans and personal loans.