The Credit Crisis has begun and is already affecting customers.
This month, £51 billion was knocked off the value of Britain’s top companies and the British pound took a fall which was the sharpest and hardest since Black Wednesday in 1992. The credit crunch is here and credit card companies are desperately trying to control customer spending. A month ago the credit cards of 161,000 Egg customers were cancelled by the company; a large number of these customers had excellent credit ratings.
According to financial comparison site MoneySupermarket.com the HSBC, Halifax and Co-Op are all taking action to control customer debt. The companies named by the website said that their credit limit reductions were not unusual and a spokesman for HSBC said: "Two years ago we announced we would take a more prudent approach to lending. This has got nothing to do with the credit crunch."
Industry sources have said that companies such as Capital One have been lowering customer’s credit limits and rejecting new applications far more frequently than they were before the recent economic concerns began. The Telegraph.co.uk also reported that: “Customers are typically being told that their credit limit is being cut by around 10 per cent, reducing someone on a £5,000 limit to £4,500.”
The BBC reported that the UK’s Economic growth might be as much as 1% lower in 2008 and 2009 as a direct result of the credit crunch. The forecast was described as a worst case-scenario which follows the recent occurrences in the US sub-prime mortgage sector. The sub-prime sector specialises in loans to people who have poor credit histories or live on low incomes and recent rises in interest rates have led to high numbers of people losing their homes and defaulting on loan repayments.
Statistics published by The Guardian said that almost one in eight British citizens owned at least 4 credit cards, adding that 28% of eligible people had applied for a new card over the past 12 months. The report also showed that 22% of eligible people in the UK did not own a credit card at all.
The majority of people who have more than four cards are usually using them to juggle funds from card to card in order to take advantage of 0% balance transfer deals and minimise interest costs. But what about those who have that many cards just to keep on top of the bills? It is these customers who are responsible for the difficulties we and the banks now face both in the US and closer to home.
The US Bear Stearns fiasco and our own debacle over Northern Rock appear shining examples of how things can often not go to plan when our political leaders and financial authorities forcibly hurried to make decisions. Our economic crisis is mirroring that of the US and we need to learn from our mistakes. Mistakes which have had repercussions world-wide; mistakes which have caused people to lose their homes and more.
It’s imperative that those of us who do have credit cards take responsibility now and assure we keep up with repayments, stick to our credit limits, keep track of our spending , control our budgets and stay aware our credit status. We are personally liable for national debt. The UK Treasury say that the financial crisis will last until 2009.
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