How the Credit Crisis on Wall Street Is Affecting Main Street

Sept. 25, 2008 — -- We've all heard Treasury Secretary Henry Paulson and Federal Reserve Board chair Ben Bernanke warn that the big Wall Street bailout is necessary because credit is dangerously tight and our economy could come to a standstill.

But we wanted to know -- are the effects starting to trickle down to real people?

So we checked into the types of loans consumers need most and learned you'll need a higher credit score and more time to get less money.

The nation's credit crisis arrived at Pamela Pfitzer's house outside Sacramento, Calif., via the U.S. mail. She received notices from two credit card companies reducing her spending limits -- one dramatically, from $2,800 down to $1,000.

"I was pretty angry," Pfitzer said. She says her financial situation didn't change. The banks' did. "It doesn't seem logical to me. I could see if I made late payments or no payments, but nothing changed at all."

She's not alone. American Express reduced the limits of more than twice as many card holders as usual this year.

Those numbers are no surprise to Gail Cunningham of the nonprofit National Foundation for Credit Counseling, which is affiliated with the popular Consumer Credit Counseling Service.

"Creditors are circling the wagons," she said. "They can't afford people who can't pay back the loan."

The number of unsolicited credit card offers people receive in the mail has declined, according to Synovate Research. However, if you have stellar credit, your mailbox will still be full.

But stores are still offering instant credit because they need the boost to sell merchandise. Plus they know that a huge percentage of people fail to pay off the "0 down 0 payments for 12 months" type loans in time.

Fail to pay and you owe a hefty interest rate that is retroactive to the date of your purchase. Ouch!

Lenders are lowering limits on existing home equity lines, too, and even offering hundred-dollar bonuses to people who agree to close their lines, all so they don't have to worry about these potential liabilities.