The lending institutions operate in cyclical markets. Credit, like most investments, varies with the changing economic climate. As such, there will be times during economic prosperity when obtaining a loan will be easy. Lending standards will be relaxed and banks and lending institutions will start making loans to people of questionable creditworthiness in exchange for a higher interest rate. On the other hand, during times of economic depression or recession, the credit industry becomes exceedingly strict. Only people with great credit or collateral will be able to obtain favorable loans. As such, fewer loans will be distributed and thus, industries that rely primarily on loans (such as the residential real estate market and the auto industry) in order for people to buy their products begin to suffer.
If you are an investor, you may be able to take advantage of such situations so that you can profit from the same. The goal, at its most basic level, is to buy when things are cheap and sell when the economy is booming. As stated above, certain markets suffer when the credit cycle is in a phase where it is harder to borrow money. One such industry is the residential real estate industry. Therefore, should you be able to pick up some investment properties during a time when people are strapped for cash and may have taken a larger mortgage than they could afford, you could see a nice return in a year or two once the market rebounds. Additionally, if you get renters in those investment properties during that time, you may be able to have some cash flow.
These credit cycles happen all the time to varying degrees. Therefore, if you are able to analyze the market and predict when a shift in the cycle may occur, you could make a lot of money. Besides knowing when the cycle is going to go down, you have to try to predict when the cycle is going to go up. As such, you will be better able to time your purchases and sales to correspond with the changing market.
Remember, the credit cycle is only one clue. There are other economic, social, and political factors to consider before diving into an investment. As such, look for signs of a changing credit cycle and see if the other factors fall into place in order for an ideal investment period to begin.