Expect tight credit to last

Tougher rules and lower limits will stick around long after the crisis eases, financial experts predict

An inflatable gorilla beckoned from the roof of Don Brown Chevrolet in St. Louis. Servers doled out free bowls of pasta, and a salesman urged people to "come on up under the canopy and put your hands on" a new set of wheels.

But sitting across from a salesman in a quiet back room, Adrian Clark could see it would not be nearly that easy. This was the ninth or 10th dealership for Clark, a steamfitter looking for a car to commute to a new job. Every one offered a variation on the discouragement he was getting here: Without $1,000 for a down payment, no loan.

"It's just rough times right now," Clark said. "Rough times."

For Clark, and for a nation of consumers heavily dependent on credit, there are growing signs that those rough times could prove to be more than just a temporary problem. They could be the beginning of a stark new reality.

Even when the current credit crunch eases, the nation may have finally maxed out its reliance on borrowed cash. Today's crisis is a warning sign that consumers could be facing long-term adjustments in the way they finance their everyday lives.

"I think we're undergoing a fundamental shift from living on borrowed money to one where living within your means, saving and investing for the future, comes back into vogue," said Greg McBride, senior analyst at Bankrate.com. "This entire credit crunch is a wake-up call to anybody who was attempting to borrow their way to prosperity."

A prolonged period of tighter credit is ahead, economists and financial analysts say.

U.S. consumers will find it much harder to get a credit card and to carry large balances. Late fees will rise, and lines of credit will be reined in. After years of buying homes with interest-only loans, or loans that allowed people to borrow more than the value of the home, substantial payments and down payments will be required. Interest rates are also likely to rise.

Lenders, far more wary of risk, have tightened the standards they use to judge potential borrowers. Regulators will be looking over their shoulders.

The changes cap three decades in which U.S. consumers -- along with businesses and government -- have run up ever-increasing debt. Americans became accustomed to financing purchases large and small with plentiful credit cards and easily approved car loans, and by siphoning the equity in their homes.

Lenders did far more than just make credit plentiful. They aggressively marketed it as a necessity, a way for smart consumers to leverage themselves into a better lifestyle.

The financial meltdown has made clear the role an increasingly global economy played in facilitating U.S. consumers' borrowing, with banks packaging and selling debt to investors, providing cash to people who once would have been considered too risky to get a loan.

High cost of borrowing

The expansion of credit has, in many ways, been a good thing. It has allowed many more people to buy homes. At a time when household incomes have stagnated, borrowing has made it possible for many people to afford purchases and cover short-term expenses they might otherwise have had to delay or abandon.

But all that borrowing came at a heavy cost.

Americans are more reliant on debt than ever before. The portion of disposable income that U.S. families devote to debt hit an all-time high in the second half of last year, topping 14 percent. When other fixed obligations -- such as car lease payments and homeowner's insurance -- are added in, about one of every five household dollars is now claimed by bills.

The credit card industry lobbied heavily in 2005 to tighten bankruptcy laws to make it more difficult for consumers to seek court protection and shed responsibility for paying off debt. But in a sign of just how much households have become dependent on borrowing, the average amount of credit card debt discharged in Chapter 7 bankruptcy filings has tripled -- to $61,000 per person -- from what it was before the law was passed.