However, in high-income households, things are better. Stock market gains have meant an infusion of cash here; $2.5 trillion has been generated during the last two years alone and households with incomes over $50,000 have cut their monthly repayments from 14% of income to 12%. Poorer credit borrowers (those with less than $50,000 household income) are suffering. Their monthly repayments have risen from 15% of income in 1989 to 18% in 1997.

Fueled by cheaper money, banks, stores and other credit card issuers have launched massive marketing efforts to encourage people to borrow. For poorer households, the balance on credit cards, instalment loans, and credit lines has shot up 30% in two years to $11,000 debit. There was a 51% surge in bankruptcies in 1997 compared with 1995. Pittsburgh’s Consumer Credit Counseling Service’s workload climbed 22%.

The share of credit card balances written off was over 5% in 1997, compared with 3% in 1995. "Subprime" lenders, that offer mortgage and auto loans to lower-income households, have experienced profit difficulties and some, like Jayhawk Acceptance Corp., have filed for bankruptcy. Faced with this difficult situation, banks and businesses have been cutting down on the 2 billion credit offers made annually. First Chicago NBD will add around 1.5 million customers in 1997, compared with 3 million in 1996.

The lesson to take from this is that even though a business can offer credit easily to customers who demand it, a prudent business must still establish strong credit controls. This guarantees the integrity of its credit accounts. Bad credit debts represent significant losses and may sometimes threaten a company’s continued existence.