Finance or Politics? WARNING! I'm fired up :)

A recent Personal Finance assignment included research regarding the "sweeping changes" (aka new regulations governing credit card companies). I chose to focus on one of eight changes.  A fellow classmate's post ignited my desire to dig deeper...

On the surface, the change of lowering the limits, is appealing to the eye and can display the hint of "hey they care about my credit rating" when in all actuality; they DON'T! The sweeping change (or at least this bullet point) makes it appear as a sincere way to "help”. This very issue has impacted my family’s income, as it depends on the consumer’s ability to purchase homes or refinance mortgages (most of which to consolidate debt). Although the change may appear as an encouragement and accountability of finances, in essence its damaging, maybe even more so than bankruptcy. What really happens is they are increasing your debt to income ratio.

This ratio is the benchmark for credit approval among all lenders.  The ratio is calculated based on factors beyond income and debt such as (but not limited to): the “inline” percentages seen on your credit report. For example: the credit limit is lowered and the balance remains unaltered, causing for a higher percentage of credit use. This inline percentage, as I like to refer to it as, essentially impacts your A, B, C or D rating. This “rating” or “score” is a significant factor determining the details of your debt which is then placed in the equation of debt divided by income (aka debt to income ratio). In essence, on paper, the credit card companies and their notorious lack of disclosure, have just decreased your ability to gain affordable insurance, limited your options for providing transportation for your family, and, most disturbing, have made it nearly impossible to finance or refinance a mortgage.

Most of us would agree that, for the most part, these items are “needs” however; in the nation’s current financial crisis, many Americans can’t afford these “needs” and quite honestly feel as if they are “luxuries”. These limitations are largely due to yet another set of regulations and guidelines that directly impact what is considered acceptable ratios (I will save that fiasco for a later post). Education is a must! Are the credit card companies offering a lower balance along with lowering limits? Are they giving you the choice to lower your limit or is it “automatic”? Better yet, are they properly informing the consumer how to effectively make this decision? Have they educated the cardholder how this one decision has an enormous impact for several years to come? I didn't’t see this “sweeping change” as something it very well could be, a great beginning to America’s debt recovery. Although I may seem pessimistic on this matter, I do see it as a positive step, just lacking education and disclosure which are necessary components in making sound decisions for you and your family’s financial goals (aka financial plan).

This "helping hand" will cripple the very core of the government's solution(s) to rejuvenating the economy (i.e. housing industry and insurance availability). Seems to me, Obama has neglected yet another key factor in rejuvenating the economy as this law change is counter-productive, beneath the surface that is. Food for thought: What is the point of enticing mortgage interest rates if no one can qualify?