profitable

Question for Kim from a reader: “How come the banks are getting money and they aren’t kicking it down?”

My answer: I think the banks are kicking money down, though they are doing it slower and with tighter regulations than before.  The best analogy I can think of is that the pendulum has been swinging to the side of what I would call fiscal conservatism or tighter money.  Cash was free and easy for years and just by virtue of having a mailing address you could get offers for credit cards, home loans, etc. Bank reps were turning a blind eye to compliance with regulations, limits as to how much somebody could qualify for a loan, and something as plain as having 20% down as a home down payment. Times have changed-and it may not be for the worse over the long run. A lot depends on how the new administration gets projects going to put people to work so they can get paid, but I am getting off topic and on my soap box here.

Cash still can be come by but it isn’t free and easy as it was ten or twenty years ago.  I have talked to a lot of people who have had their HELOCS cancelled and after an appraisal, they have had them reinstated.

Did anything change in their credit situation?  Probably not.  The property values were finally looked at realistically and the bank/lender used a realistic more conservative valuation method – versus the blind computer method that they used for years and that gave a true example that not everybody in America is upside down on their mortgage.

The same can be said for credit card issuance.  People are still getting applications for credit cards and lines of credit so the money appears to be there – it is just that the bar has been raised back to the way it use to be decades ago where they actually expect to have reasonable valuations and down payments before lending money for homes and some sort of track record before issuing credit cards.

I wouldn’t be surprised to see credit tighten for personal non-secured lines (like credit cards) though that may be superseded by interest rates going up once the economy finds a direction.  That may not happen though for a few years since it will take some time for the economy to sort itself out and in the meantime credit may be a tighter than it was before.

So the solution?  Try and keep a positive cash flow, save money and pay bills on time.  Eventually, you will get credit card offers and when you do, watch the interest rates and use them sparingly and not as sources of income.

Whether you agree with the bank bailouts or not, the profitable way of approaching credit in any of its shape or forms (credit card, HELOC, line of credit, etc) is to remember that the purpose of it is to jumpstart or help out something, not to be used as an income stream.  The money is borrowed – that means that sooner or later that cash has to be paid back.  If interest rates go up, and they will over time, you don’t want to end up paying more money than you borrowed among other things.

On a separate note, I’ve started working on my next non-fiction book.  The book has to do with personal finance.  Now, more than ever, we have to not only make sure our own financial acts are together but we need to make sure that our children are learning to budget and watch their money.

 I will give you more information as it develops.  If you have any ideas or suggestions for titles, please drop me a line or a post on the blog.

Kim Greenblatt

 

You are reading the profitable blog and Kim Greenblatt answers a reader asking when banks will kick down money.

Tags: availability, banks, Business, credit, future, HELOC, Kim Greenblatt, line of credit, loans, of, profitable

This entry was posted on Wednesday, October 22nd, 2008 at 12:09 am and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.