What is a Credit Squeeze?
A credit squeeze is a situation that takes place when two economic factors occur at the same time to create a limit on the supply of credit. With a credit squeeze, interest rates increase significantly during a period when lenders are in the process of raising the requirements for obtaining a line of credit. As a result, people with marginal credit ratings are suddenly ineligible to obtain any type of additional credit. The occurrence of a credit squeeze can have a significant impact on the overall economy. With creditors limiting the supply of credit to consumers, the opportunity for purchasing goods and services with the use of revolving credit is reduced. This in turn can lead to a drop in the value of investments made by the shareholders of companies who supply those goods and services. However, the amount of impact that a credit squeeze can exert on an economy is somewhat limited, since a portion of the consumer base remain eligible to obtain new lines of credit and will continue
