If approved, the proposed $700 billion bailout will be the largest one in history. Proponents are hoping the bailout heals the economy and prevents Wall Street from falling apart. What about consumers, though? Will the bailout do anything to help your credit?
Unfortunately, it’s tough to predict the results of a bailout, but even if the results are positive, they won’t directly influence your credit.
According to USA Today, the bailout probably won’t make mortgages any more affordable than they already are. In fact, they speculate that foreclosures will continue to increase, at least for the next year, for both subprime and prime borrowers. The fact is that homeowners can’t afford their mortgages and the bailout does nothing to change that.
The bailout could lead to lower interest rates. With some financial aid, banks may be able to offer more competitive interest rates, giving you a cheaper opportunity to pay off your debt.
The hope is that the bailout will give banks some cash so they can afford to make more loans to individuals and small businesses. Now, that could be good or bad for your credit, depending on how consumers manage it. Given the state of the economy, people (in general) don’t need more debt. They can’t afford the debt they already have. That's why the financial market is in such turmoil.
I see a small glimmer of hope for consumers – if banks have the money to make loans again, consumers might be able to refinance their mortgages with more affordable interest rates saving them from foreclosure and severely damaged credit. That’s a big if. It could happen. We’ll just have to wait and see.
Update, 10/3/08William Perez, Guide to Taxes, has a complete list of the tax cuts in the bailout proposal. Here are a couple that are related to cancelled debts.
Cancelled mortgage debts could be excluded from taxable income until 2012. Typically, you're required to report cancelled debts as taxable income on your income taxes. Under the Mortgage Forgiveness Debt Relief Act of 2007, cancelled mortgage debts would be excluded from taxable income until 2009. If the bailout is approved, the provision would be extended until 2012.
William also says that individuals in the Midwestern disaster area who had debts forgiven will also be exempt from reporting those debts as taxable income.
Don't understand the bailout? Check out Don’t Understand the Financial Crises or Bailout Proposal? Read This. at Money Over 55.
I noticed some of my credit cards are slashing my credit limits……my credit score was excellent. Will the drop in credit limit hurt my credit rating and if so who do I turn to. I really don’t think customers should have to be punished for the banks mismanagement. We as a people are already going to pay to bail them all out so why do we have to pay by causing our credit ratings to drop also? As with all the american people I am extremely upset by all of this. Who can I turn to to make sure these changes aren’t going to affect my credit score?
my 3 Chase cards all lowered my limits hugely. I had a credit rate above 800 now down to 750 with no fault on my part, What recourse have I? If I cancel the cards… which I would love to do …the rate falls even lower. I have never been late, never missed a payment and pay the majority of my cards in full monthly. Loans are paid in full in advance of due dates.
The bill passed in Congress should have addressed this. I am very ticked.