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Forecasting experts evaluate many different data elements and trends to try to predict if the economy is in a recovery trend or not. Two important items analyzed are consumer credit behaviors and how much new credit is being extended by lenders.
During a recession, many consumers (in general) reduce their levels of borrowing — instead trying to save more, as there is more risk of job loss and increasing expenses. They hold off on buying a new car or take a “local” vacation as a means to save money. At the same time, lenders will generally tighten their lending criteria to hedge against bringing incremental potential risk onto their books. These two patterns reduce economic activity and can prolong a recessionary period.
Now, it appears that consumers are starting to use more credit and are opening more credit, according to a report recently published by Equifax (Equifax is one of the three big credit reporting agencies in the U.S. — along with Experian and TransUnion).
According to the report:
At a macro level, these are encouraging early indicators that a recovery may be forthcoming. On a micro level, be sure to follow these simple best practices to ensure you have a strong credit rating in “boom or bust” times:
Image: TaxCredits.net, via Flickr
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