While you might think of banks, businesses, and government entities when you hear the words “credit crunch,” these times of economic turmoil and uncertainty can affect you, too. Some economic sectors are affected more than others during these times, and some industries and businesses suffer more, as well. However, if you make investments, have recently taken out a loan or are planning to do so, and have money stored in a bank account, you may also feel the effects of a credit squeeze.

What is a Credit Crunch?

Understanding how credit squeezes work requires knowing the “credit crunch” definition. These economic events occur when governments attempt to control inflation by setting restrictions –typically through limitations – on lending to small businesses and consumers. During these times of government economic regulation, loans become difficult for people to get. Furthermore, when loans are given out, they typically come with higher interest rates and more stringent repayment conditions.

Setting up a Line of Credit

If you need to borrow money during a credit squeeze, consider doing so by setting up a personal line of credit. Lines of credit are flexible loans given from banks or lenders to borrowers who need money for purchases. Traditionally, these financial tools have been used by businesses to make secure investments and to meet working capital needs. So, how can it help you? Like credit cards, personal credit lines provide limited and pre-specified amounts of money that individuals can use as needed, and repay over a set period of time. These tools are attractive to people during times of economic uncertainty, as they are not based on income. They are also lower-risk sources of revenue for lenders, which makes them more financially sound than traditional one-time loans. However, they are not entirely risk-free, and you must meet certain financial criteria to establish a credit line in the first place. As with other loans, you will be charged interest immediately upon borrowing money. Additionally, you’ll need to be approved by a bank prior to establishing a line of credit.

Managing Your Credit

Maintaining a decent credit score is critical to ensuring your financial well being. A poor credit score can significantly reduce your likelihood of being approved for a personal line of credit or other type of loan, especially during times of heightened financial concern. Furthermore, having a poor credit rating might impact many other areas of your life, as well. Many companies include credit checks when considering new employees for hire, and having a low credit score may potentially cost you a job. Some businesses also evaluate credit scores when promoting employees, and the better your score, the better your chances may be of receiving a raise.

Credit standing transcends the corporate world, as well. Most insurance companies factor credit scores into setting premium rates and eligibility for certain policies. Additionally, many landlords request credit checks as part of the rental application process. To avoid a loan or housing application denial, you’ll want to know the potential effects of bad credit on your financial health. To determine whether or not you are in good credit standing, you will need to check your credit report. You can access that by requesting a copy of creditreport from any one, or all three, of the federal credit bureaus – Equifax, Experian, and TransUnion. These reports contain a detailed analysis on which your credit score is based. Your credit score is comprised of five factors: payment history, age of your credit accounts, past inquiries, variety of credits, and outstanding payments. It is a good idea to monitor your credit report to make sure that your credit score does not slip, and so that you can begin to make changes if it does.

While credit crunches are, most frequently, associated with businesses and banks, they have an impact on individuals, as well. During these times of economic uncertainty, many individuals will find it much harder to secure a loan. Having a good credit score is crucial for receiving loans in a credit crunch, and opening a personal line of credit, which is more flexible than a one-time loan, will help as well.