Consumers will suffer at the hands of the credit crisis this Christmas, as the credit crunch makes it increasingly difficult to get approved for credit cards and loans.

Shoppers will not find the same avenues of credit open to which they are accustomed this Christmas, because a rising number of borrowers are being deemed ‘sub prime’ by lenders, and are therefore having applications for credit refused and spending limits reduced.

Lenders are under pressure to increase the creditworthiness of their customer demographic which is resulting in thousands of applications being refused, and the lenders themselves will also feel the effects of the squeeze on credit because people will be spending less.

According to Precious Plastic 2008, a report by professional services firm PricewaterhouseCoopers, credit card companies are already experiencing a £4billion decline in profits since 2000 as a result of various factors such as rising bad debts and fierce competition.

The report revealed that “Credit card net yields after charge-offs are at their lowest levels since the start of the millennium”, and that “annual fees on cards will become the norm”, making it even harder for consumers to afford credit.

Small businesses are also expected to be hit by the credit crisis, amongst fears that funding for their ventures will dry up as banks become more stringent in their lending practices and the consumer has less disposable income to spend.

Ian McCafferty, the Confederation of British Industry’s Chief Economic Adviser, said that some small firms are “feeling the pinch and have started to scale back business plans, whilst more expect the situation to worsen. These businesses are concerned that over the coming year credit will cost more, and lending conditions will tighten. There will clearly be a knock-on effect on investment, jobs and the wider economy, but the overall impact is still likely to be limited.”

Meanwhile, America continues to live in fear of a recession – two fifths of American households are predicting one in the next year and consumer confidence is at one of its lowest points for the last decade and a half.

House prices are falling, foreclosures are expected to double in the next year, there’s a massive slow-down of consumer spending – which has been driving the economy in recent years – and losses are predicted to spread to the credit card, automotive, and commercial property sectors.

A refinancing scheme and measures introduced in California by the state’s governor Arnold Schwarzenegger are helping to prevent foreclosures and keep Americans in their homes, while also changing lending practices and increasing mortgage providers’ accountability for irresponsible lending.

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