Ready to Borrow

2009 saw a peak in consumers with a new foreclosure on their credit reports. Over half a million suffered these blemishes, but according to Bloomberg, these individuals may just be ready to borrow again.

It takes seven years for serious negative information to roll off of your credit report. Since the number of foreclosures peaked in 2009, the time is approaching for many of those borrowers to be back in good standing with the major credit bureaus. The implications are obvious: improved scores also means improved chances of success for a loan, for homes or otherwise. Borrowing is also appealing right now because interest rates are so low. On top of that, the economy has greatly improved since the days during the subprime mortgage crisis. In the years since, unemployment has fallen and incomes have increased

So all of these factors mean an overall increase in comfort and spending, right? Not necessarily. There are always two sides to these situations.

Some expert opinions ring with familiar advice, “just because you can, doesn’t mean you should.” There are two factors preventing a surge in borrowing and spending, even though the conditions are ostensibly favorable.

The first is rooted in practicality. Just because negative events like short sales or foreclosures are disappearing from credit reports doesn’t mean that other negatives will too. When someone defaults on a home loan, for example, it’s safe to assume that other areas of their personal finances also take a hit. If trouble making payments on other loans or settling bills came in the years after foreclosure, then those negatives will obviously remain for a while longer.

The other factor is purely psychological. Even if the lost money was recouped and credit scores have fully healed, there’s still the trauma associated with an undoubtedly tough event. The housing crisis may have a lasting effect on some consumer’s perception of the economy, and even though everything may be in its right place there’s still a feeling of overall trepidation. For these consumers, why risk everything again?