Credit Scores and the Credit Crisis


stock.jpgWith the current credit crisis happening before our eyes, now is the time to make sure your credit report is in order.  Many banks are taking precautionary measures to ensure a credit crisis like this doesn’t happen again.  They are lowering the loan to value ratio on how much they will lend up to the home’s value; for example, my financial institution used to lend up to 100% loan to value, and now the maximum is 85%.  The are verifying income on a regular basis and requiring pay stubs.  It seems that the rules are being changed and banks are buckling down even more on a daily basis.

Today it was announced that if there’s a joint application, the rate of the loan would be based off the person with the lower credit score.  Hypothetically, if Mr. Money and I applied jointly for a loan and my credit score is 800, which would be an interest rate of 5%, and his credit score is 700, which is an interest rate of 7%, they are going to give us the 7%.  It is really devastating for someone who has horrible credit and has a strong co-signer.  It’s almost not worth having that co signer anymore.

While I understand all the rules and regulations, it’s still hard for me to grasp.  Almost my whole banking career we’ve been very giving with our loans.  As long as you had good credit, a steady income, and would sign on the line, you’d get the loan you wanted.  Not anymore.  We’ve been struggling every month to meet our loan goal.  Thankfully, they did lower it, but even then we’re still struggling.  It just amazes me how fast things can go downhill.

What’s your opinion of all these new rules and regulations for lending?  Do you think they are a good thing?

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3 thoughts on “Credit Scores and the Credit Crisis

  1. Todd A says:

    As a former community banker, we never lowered our loan-to-value below 80%. For nearly a decade, if you want to own a home, you better bring 20% to the table. It wasn’t so long ago that our parents or grandparents were looking at loan-to-value ratios of 50%. Not to mention, how attached are you to a home that you have no money in ?

    I know loans are the highest yield investment (in many cases), but sometimes, you just gotta take the yield off a Treasury bond instead.


  2. Mrs Money says:

    Todd- I think it would be easier for me if the loan to value was never as high as it was. I think 100% LTV is ridiculous. Obviously it was a bad idea!


  3. Make Money says:

    When we took our loan we had a good LTV having a 25% share in our house but as house prices have down so quickly and with the threat that interest rates will rise here the value of our home has dropped so the money we have in it has gone down by 15% so to remortgage we would only have a 10% share – its just unreal who is actually making money.


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