You, Me and the Credit Crisis

When the currently ongoing credit crisis started, a lot of people shrugged shoulder in expectation that it wouldn't affect them. They couldn't have been more wrong; the mistakes may have been the deeds of a few but the consequences are for all of us to face.

How does the credit crisis affect you?

To analyse how every one is affected, it's better to break it down into groups of consumers:

Risky credit consumer

These are people with poor credit histories, new to credit or those on low income jobs.

Decisions to lend (more than what's affordable) to this group is what started the credit crisis.

As a result of the credit crisis, it will be harder for this group to qualify for a mortgage, loan or credit card. In cases where the applicant is successful, the interest rates will be unbearable. In the UK we already see bad credit loans costing as much as 40% interest, this trend will stick around for a few more years.

Good credit consumer

Yes, even good credit consumers will be affected. Credit reference agencies were partly blamed for the crisis; therefore, it's very likely that credit reference agencies will review the methods used to rate one's credit. What this means that people that were on the margins of a good credit rating will fall into the risky credit pool.

House seller

If you follow the real estate market, you'd know that right now is not a good time to put your house on the market.

House prices are dropping fast and as if that wasn't bad enough, many of your prospective buyers will find it harder to get a mortgage thanks to credit crisis.

The rest (world, economy, etc)

The sub-prime mortgages meltdown happened in America, but the impact is truly global: the complex nature of inter-bank lending has brought about a situation whereby the worst affected are not the banks that directly gave out those risky loans, rather the investment banks and hedge funds, to whom those bad debts were sold on to. The impact is felt as far wide as London, Switzerland, Hong Kong and beyond.