A tightening of credit (also known as a tightening of credit or credit
crisis) is a sudden reduction in the availability of loans (or credit),
or a surge in the cost of obtaining loans from banks .
There are a number of reasons why banks suddenly can increase the cost
of borrowing or lending more difficult. May be due to a decline in the
value of the collateral used by banks when issuing loans, or even an increase
in the perception of risk in relation to the solvency of other banks in
the banking system. It may be due to a change in monetary conditions (for
example, when the central bank suddenly and unexpectedly raised interest
rates or reservations) or even may be due to the central government to
impose direct controls on credit or not to encourage banks participate
in new loans.
A tightening of credit is often caused by a long period of negligence
and improper loan resulting in losses for lenders and investors in debt
when loans turn sour full extent of bad loans is known. These institutions,
in May, and then reduce the availability of credit, and increase the cost
of access to credit by raising interest rates. In some cases, lenders
may not be able to do more, even if they so wish, following losses earlier.
The Crunch is usually caused by a reduction in market price before "overinflated"
active and refers to the financial crisis resulting from falling prices.
In contrast, a liquidity crisis was triggered when another company of
his temporary inability to access the bridge financing it needs to expand
its business without problems or cash flows of payments. In this case,
access to additional lines of credit and trade through "the crisis
can not allow the company to navigate the problem and ensure the solvency
and sustainability. It is often difficult to know, in the midst of a crisis
If companies are experiencing difficulties in a solvency crisis or a temporary
liquidity crisis.
This can lead to large-scale exclusion or bankruptcy for investors and
entrepreneurs who have reached the end of the market, as asset prices
inflated and fell abruptly in general.
In the case of a tightening of credit in May it would be preferable to
"mark to market" - and, where appropriate, sold or put into
liquidation if the capital of the company concerned is not enough to survive
the post-boom credit cycle. In the case of a liquidity crisis, on the
other hand, in May is better to try to gain access to credit lines, growth
opportunities that exist in May once the liquidity crisis is overcome.
A long credit tightening is the opposite of cheap, plentiful and easy
lending practices (sometimes referred to as "easy money" or
"lose credit"). During the phase of increase in the credit cycle,
asset prices in May experience episodes of frenetic competition, leverage
bidding, resulting in hyperinflation in the active market. This can lead
to speculative price bubble to develop. At the resumption of the creation
of new debt also increases the money supply and stimulates economic activity,
it also tends to temporarily increase economic growth and employment.
Often it is only in retrospect that the participants in an economic bubble
that the point of collapse is evident. In this regard, the bubbles can
not be dynamic economic unlike Ponzi schemes or pyramid schemes .
As Cambridge economist John Maynard Keynes observed in 1931 during the
Great Depression: "A good banker, alas, is not one that provides
and avoids the danger, but one who, when he is in ruins, is in ruins in
a treaty with its Fellows, so that no one can really blame him ".
2007 subprime mortgage financial crisis caused fears of tighter credit
The credit history or credit is, in many countries, a record of a person
or company in the past and the repayment of loans, including information
about late payments and bankruptcy. The term "credit reputation"
can be used synonymous with credit history or credit score.
In the U.S., where the client has a credit application to a bank, store
or credit card company, your information is transmitted to a credit bureau.
The Credit Bureau is the name, address and other identifying information
about the applicant credit information maintained by the Bureau in its
files.
This information is used by lenders such as credit card companies to
determine the creditworthiness is the identification of an individual
to pay a debt. The willingness to pay the debt indicated the time spent
by how the payments were made to other lenders. Donors like to see consumer
debt obligations paid on a monthly basis.
The other factor in determining whether a lender will provide consumer
credit or loan is based on income. More revenue, all other things being
equal, more credit and consumers can have access. However, lenders are
granting credit decisions based on their ability to repay a debt (income)
and willingness (the credit report) as shown in the past payment history.
These factors help determine whether the lenders to extend credit and
on what terms. With the adoption of risk-based pricing for virtually all
loans in the financial services sector, this report has become even more
important because usually the sole element used to choose the annual percentage
rate (APR) , The grace period and other contractual obligations for credit
card or loan.
Negative credit history, also called sub-prime credit history, the condition
of not credit history, credit history damaged, bad credit history, and
bad credit history, credit rating is negative.
A negative credit rating is often considered undesirable to other donors
and the extension of credit for lending money or capital .
In the USA, a consumer's credit history compiled by consumers and credit
reporting agencies. The data reported to these bodies are, primarily,
by creditors including detailed records of the relationship someone has
with the lender. Detailed account information, including payment history,
credit limits, high and low balances, and any aggressive action taken
to recover outstanding debts, are reported regularly (usually monthly).
This information is reviewed by a lender to determine whether the approval
of a loan, and under what conditions.
That credit has become more popular, it became more difficult for lenders
to assess and approve credit cards and loan applications in a timely and
efficient manner. To resolve this problem, credit score was adopted.
The credit score is the process of using a proprietary mathematical algorithm
to create a numerical value which describes a set of solvency of the candidates.
Sheet music, often on the basis of figures (ranging from 300-850 to consumers
in the United States), statistically analyze a credit history, compared
with other debtors, and measure the magnitude of financial risks. Given
that lend money to any person or company is a risk, credit offers a standard
method for lenders to assess this risk quickly and "without prejudice".
All the credit agencies also offer credit score as a service.
Credit scores to assess the likelihood that the borrower pay a loan or
other credit obligations. The higher the score, the better the credit
history of higher and the likelihood that the loan will be repaid on time.
When creditors report an excessive number of late payments or problems
with collecting the payments, the score suffers. Similarly, when adverse
judgments and activities of collection agency reported, the score declines
further. Or repeated criminal record entries public can reduce the score
and trigger what is called a negative credit history or credit negative.
Your credit score is a number calculated from such factors as the amount
of credit outstanding compared to the amount you need, beyond their ability
to pay all your bills on time, how long have you had credit, types of
credit used and the number of investigations. The three major rating agencies
consumer, Equifax, Experian and TransUnion sell the scores of all credit
to the lenders. Isaaac fair is the leading developer of credit notes used
by these rating agencies consumer. How your FICO calcualted this evaluation
is complex. One of the factors in your credit score is Fico on your credit
history. When a lender requires a credit score, may cause a small drop
in credit score. This is because, as noted above, a number of requests
for a relatively short period of time may indicate that the consumer is
financially difficult situation.
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