What Is Credit Crunch

Credit crunch is a period of time in which credit and loans are more difficult and costly to obtain. Owing to the economic meltdown and failing of mortgage is in the year 2007 the consumer is started relying more on credit cards as a source of money on credit. Database credit card delinquencies increased. The credit card agencies then in turn started taking measures to cut down the losses by increasing interest rates and credit card fees and decreasing credit limits. Due to a higher delinquency rate the approval criteria for all kinds of loan and credit became more strict. While the person could qualify for a mortgage or a credit card with an average credit score will good interest rates a few years back, this was no longer possible.
A credit crunch happens when investment in debt is no longer profitable. Corporations and institutions invest in debt and make money when the borrower’s repay the loan with an interest. When the borrowers begin to default on their payment the investors lose their money. Is when credit card and loan delinquencies rise debt investments become unattractive which results in investors pulling their funding. As a result banks become more strict with their guidelines of approving credit and loan. This leads to a situation where it becomes more difficult for a consumer to get approved for a loan or credit.