How Financial Crisis Affected the Issuing and the use of Credit Cards

In late 2007, the world started to experience one of the worst financial collapses in the modern history. Even after 4 years, the economies have still not recovered completely and the remnants of the financial meltdown still haunts the financial markets worldwide. Credit crunch, or not being able to obtain credit freely, was one side effect which precipitated as a result of the financial meltdown and it affected all forms of credit including the use of credit cards. It may be prudent to state that the credit crisis made the financial institutions to think twice when issuing a credit card or increasing the credit limits while it also affected the credit card users in several different ways.

Influences on the issuing of credit cards and increasing credit limits

At the start of the financial crisis, job losses and mortgage issues dominated the headlines while failures of banking institutions and other financial entities became apparent soon after. As obtaining credit became far more difficult, people had to resort to on hand credit, which were their credit cards. However, not all had the bank balances to settle credit card debt on time and this made the credit card companies to take defensive measures when issuing credit cards and increasing the credit limits.

In fact, credit card companies wanted to shed their own clients in expectation of maintaining a credible client base with lowest risk of defaulting. Thus, throughout the credit crisis, credit card companies were looking at ways to shed their high-risk clients and one way of doing this was to implement rough assessments in credit worthiness before issuing credit cards or increasing the credit limits.

In doing so, the credit card companies were assessing their clients changing behavioral patterns with regard to paying the credit card bills. For instance, if a client regularly made the full outstanding payment of his or her credit card balance and now resorts to paying the minimum payment due, it indicates to the company that the client has become a ‘high risk’ individual.

At the same time, if a client fails to meet up with even the monthly minimum payment, which was unusual for the said client in the past, it also indicates a higher risk to the credit card company. In addition, the credit card companies were also looking at the persons overall credit score, which indicates how the client performs financially in relation to his or her credit commitments.

Influences on the credit card use  

However, credit card users might have also learnt few lessons with regard to using up the credit card without having the means to settle the bills. Thus, it has generated lot of interest on how best to use credit cards especially in situations where maintaining credit worthiness is of paramount importance in order to obtain credit when the times turn good.

In this regard, credit card users have been advised to make sure that they at least pay the minimum monthly due and avoid reaching the limit at all times. Many have also iterated the rational use of credit cards and avoiding its use for everyday household expenses. Keeping a close tab on the credit obtained and the deadlines for making the payment are also useful for the credit card users in order to avoid making the same mistake twice.