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Poorer Credit Reports but More Lenient Lenders Projected

By Faye Mergel
Published: Tuesday, October 6th, 2009

Industry analysts expect banks and other financial institutions to lower standards as bankruptcy numbers continue to rise. Creditors are forced to adjust to the pervading financial condition among Americans, allowing them more chance to get credit.

Poorer Credit Reports but More Lenient Lenders ProjectedNationwide housing crisis and record-high unemployment in some states are two of the major factors which drive most Americans to the verge bankruptcy. Experts noted that what used to be a last resort is now the only option available for many consumers.

With more than 6,000 bankruptcy filings each day, specialists predict that the total number of bankruptcies for 2009 is likely to go over 1.4 million. This means that 1.4 million more Americans will be carrying another negative item on their credit report for several years. A chapter 11 bankruptcy can remain across a person’s name for 7 years while a chapter 7 can last for 10. This makes him a high-risk client for creditors which could cost him excessively high interest rates and, most likely, loan denial. The situation could get worse since employers continue to pull out credit reports of job applicants, leading to a longer cycle of debt and finally to bankruptcy.

Creditors want to keep their profit intact so they are more careful on who they lend money to especially now that consumers continue go bankrupt, according to experts. However, by making more loan denials than approvals, banks and lending companies worry that hoarding too much money will only keep them from earning anything.

Lenders are already searching for ways that will allow them to assess consumers much better. Experts noted that creditors are forgoing of some traditional assessment methods such as considering bankrupt clients irresponsible and too risky for a loan. Last year, almost 1.2 million consumers went bankrupt and a 1.1% increase this is not a good sign for lenders, according to specialists. Banks also noted that the trend in bankruptcy and foreclosures are beyond the control of consumers so they should be given more chance to re-establish their creditworthiness.

Now that the doors open anew to many consumers, experts can advise only one thing: to keep debts at a manageable level so they will not feel the tremendous impact of economic fluctuations. Economic analysts say that while the recession is already over as the growth in gross domestic products suggests, America is not out of the woods yet. Using available credit wisely and applying for loan only when necessary are essential in a more responsible debt management, according to specialists.

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