What's in store for our financial future? Here's five predictions
New legislation was passed to check unfair practices of credit cards, thousands of Americans defaulted on their mortgages causing a financial crisis and unemployment hit 10 percent, limiting people’s ability to save, spend, and pay back their debts. What does 2010 hold? Ken Lin, CEO of Credit Karma offers insights and predictions.
Prediction 1: As the economy begins to improve, spending will increase to pre-recession levels and credit card debt will increase.
Over the past year, consumers have reduced their budgets in every facet of their daily lives. However, consumer spending has recently started to increase. According to Credit Karma, consumer credit card debt increased 4 percent in November and the U.S. Commerce Department reported that spending rose 0.7 percent in October.
Prediction 2: Consumers will be more optimistic about their finances in 2010 and will save more than 2007 numbers but less than 2009.
According to the Reuters/University of Michigan their consumer sentiment index jumped to a reading of 73.4 in December 2009 from a final reading of 67.4 in November. The increase by the index was largely due to an improvement of consumers' assessment of current conditions, with the current conditions index jumping to 79.1 in December from 68.8 in November. With the increase, the index rose to its highest level since March of 2008.
In the past 2 years, the savings rate has increased dramatically from 1.5 percent in 2007 to an all time high of 6.9 percent in June 2009 according to the U.S. Commerce Department. The current savings rate is 4.6 percent.
Prediction 3: Credit scores will remain stable.
According to Credit Karma’s data, credit scores have remained relatively stable over the past year – dropping a mere 5 points since January.“I think many people really started to get a handle on their finances in 2008. They started to pay attention to how their credit was affecting them,” says Lin. “This is why you don’t see such big decreases as you may expect.”
Predication 4: Creditors will not slash rates, hike APRs, and close accounts as frequently as they did in 2009, and the government will take further action to help control bad behavior by creditors.
Consumers will see huge wins with the elimination of universal default and the new penalty price rules with the implementation of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act. Most credit card companies have already changed their terms before the act takes full effect in February 2010 so consumers won’t see the rate hikes and minimum payment increases as frequently in 2010.
“As we look to 2010, creditors will be competing for the best customers as the economy improves,” says Lin. “We should see new features and more competitive pricing for excellent credit consumers. Consumers with marginal credit will see less credit in the marketplace.”
Congress is currently considering additional legislation that would create the Consumer Financial Protection Agency. The agency would have oversight to into all credit cards, debit cards, consumer loans and credit reporting agencies to name only part of the list. It would consolidate oversight powers that are currently scattered and would have the ability to alter long-common practices.
Prediction 5: Credit card applications will decrease while mortgage applications will increase as rates remain low.
The CARD act will limit applications for credit cards. Those under 21 will no longer be able to get a credit card unless they can prove they have the means to repay the debt or a parent co-signs. Meanwhile, the Federal Reserve has kept rates around 5 percent this year and has bought $1.25 trillion in mortgage-backed securities.
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