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Can Credit Cards For Fair Credit Replace Mortgages?

Mar 26, 2008
In today's hectic financial times credit card use by the average consumer is at an all time high. When we consider that food prices are at an all-time high, gas is through the roof and our property isn't worth what it used to be you can start to see why. In the past, credit cards had a worthy adversary called a "home equity line of credit", not any more. In today's mortgage environment home equity lines are only available for those with the best credit, and that's if their house values aren't dropping.

As a result of the tightening mortgage market the average consumer is turning to credit cards at a startling rate. Credit card applications for fair to average credit are soaring over the traditional "regular" to "good" credit applications as home refinancing becomes harder and harder. This trend could possibly lead the credit card industry down the same road as the sub-prime mortgage market.

Once upon a time if you had a good job, a nice home and you could fog a mirror you could qualify for a mortgage or a second mortgage. Those days are gone as well as the credit card issuers competition. During the refi boom and property bubble many people have become addicted to debt. The cycle was to build debt then refinance and let the equity in the house pay for it. That addiction is now being shifted to low interest credit cards.

This is exactly what happened in the mortgage business. When the "rush" of refinancing was in full bloom the competition between lenders became fierce. Each lender would invent different niches to one-up the competition. For instance, one lender would offer no-income verification loans with a 620 FICO score and the next would tweak their guidelines to allow borrowers with a 580 FICO score have the same loan. This niche bidding was ultimately their undoing.

Most of these loans were put into portfolios by smaller lenders and eventually sold on Wall Street to replenish funds to continue lending money. The larger banks would buy these portfolios at a price commensurate to how the lenders loans had performed over time. Meaning, the lower default rate the higher the price. This was fine and dandy until property values started plummeting and the default rate began to rise as a result of the adjustable rate mortgages.

Now there are a bunch of banks holding mortgages they can't sell, and a lot of Americans are holding a debt they cannot refinance. This is why credit cards for fair credit applications are on the rise. This is also exactly where the sub-prime lenders found themselves at the beginning of the refi boom, tons of applications with marginal credit. It will be interesting to sit back and watch and see how well our financial institutions have learned their lesson. The unfortunate thing is they repeat the sins of late our economy will once again suffer as a result.

At DirectBanc.com, we are recommending to all of our clients to try and find a credit card that offers a "life of balance" transfer option. Most of these cards offer low transfer rates that are fixed but higher charge rates. Once you find a card with this feature we are urging everyone to move all of their credit card debt to it. Then cut up or close the other credit card accounts. Now is the time to batten down the hatches until the financial storm blows by.
About the Author
Aubrey Clark is an editor and staff writer for DirectBanc.com. He writes on subjects ranging from Where to Find Low Interest Rate Credit Cards to Credit Cards for Fair Credit.
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