A case in point is the financial crisis that the U.S. is experiencing through the credit crunch. It first started with the rash of subprime mortgage loans offered by mortgage lenders. The easy initial terms for borrowers with little or poor credit history was a bad idea from the start but everyone took on the risk with little thought of the consequences. When the borrowers couldn’t pay, the mortgage lenders assumed the risk of payment default.

The financial sector was also affected as many investment banks purchased such loan vehicles as asset backed commercial papers.  However, no one knew the extent of the bad credit debts assumed by the banks.  In hindsight, it was a huge risk that should not have been assumed.  Now the economy is in a tale spin as Freddie and Frannie Mac need to be bailed out by the U.S. Government, the Lehman Brothers goes into bankruptcy, and the Bank of America buys Merrill Lynch.  This is on top of the fact that JP Morgan Chase acquired Bear Stearns recently.

So as you can see, assuming bad credit – even for investment profit can turn for the worst even for the financial geniuses.  For the average Joe, the writing on the wall is to clean up credit report and erase bad credit right now as the credit crunch will eventually start affecting credit cards as well.  Banks are finally tightening their lending standings.   The credit cards standards require higher credit scores and credit limits are also being cut.  The writing is on the wall.  It’s time to repair your credit report and not be surprised when the tide turns for a credit crunch on credit cards.

Due to the unknown territory we are facing in the recession and the credit crunch, it’s time to shape up.  Monitor your credit card statement and make sure you pay your balance every month.  Erase bad credit and reduce credit card debt immediately.