Articles - Archived Feature

Concerned About the Credit Crunch?

You may have been hearing in the news lately that the current mortgage crisis in the United States has given way to a "credit crunch." Its impact on the economy, business and on Americans themselves surely has people wondering about their own financial situation and if the credit crunch is going to affect them. Let's look at the situation more closely.

A credit crunch happens when there is a significant decline in the availability of credit to individuals and businesses, and the cost to obtain credit rises. During these times, even good borrowers struggle to get credit. Reasons for the credit crunch include borrowers that acted irresponsibly, lenders and investors motivated by greed, passive regulators, a Federal Reserve Bank that held interest rates too low for too long, and credit rating agencies who overrated investments that included subprime loans.

As a result of the credit crunch, there is less money available to borrow, and you may not be able to get all that you need from a lender. More questions of your personal financial situation may be asked, and the time period to obtain loan approval may take longer. You may also be charged a higher interest rate on the loan. So what are you to do should you need money for car repairs, your child's education or to buy a home?

Join a credit union! In times like these, credit unions shine because their loans come from deposits made by their own members. They are not dependent upon borrowing money from lines of credit or other sources in order to have money available to lend to you. In addition, member deposits not used for loans are typically invested in very safe securities. Some of the losses experienced at other financial institutions resulted from investments in securities that contained subprime loans. The value of those investments had to be reduced, thereby creating a strain on their money supply. Some institutions experienced losses because they relaxed lending standards and made loans that should not have been made. In addition to the lenders' losses, many of the borrowers lost their homes.

Remember, if you are a local government employee, you are eligible to be a member of Local Government Federal Credit Union (LGFCU). At LGFCU, there is no credit crunch. They have low rates and money to lend—and it's done responsibly because all of their loan products are structured to offer fair credit at a reasonable cost. If LGFCU can help you with your child's education, car repairs, home renovations or new home purchases, call their Financial Wellness staff at 877.367.5428. They want to help!