Credit Score of 612 With Outstanding Sears Debt

Reader Question: I am looking to buy a home by the end of this year and my credit score is 612. I have one bill in particular (Sear's) that I have had trouble with from the day I opened the account. I moved two years ago and right before I did I made a payment to them of $700, which was half of what I owed them. At that time I also sent them my change of address form and then completely forgot about it.

Now I am receiving notices from a collection agency wanting me to pay $800 and they will mark me as paid in full. Do I want to do this? Will this make my credit even worse? Also, can I fight this?

Brandon's Response:

If it's a legitimate debt that you have not paid, I recommend paying it off completely. It's best to resolves these things and put them behind you. Paying off an outstanding debt never hurts your credit score -- and in many cases, it will actually help your score going forward.

You will probably have trouble getting approved for a mortgage loan with a 612 credit score, and you certainly won't get the best rates at that level. If you can raise your score to 700 or higher, you'll have a much easier time getting a loan.

If you have questions about how to do these things, you might want to speak to a non-profit credit counseling agency. They offer free and low-cost counseling on this kind of thing. It might be worth your time.

If it's not a legitimate debt, and you feel you are being taken advantage of by the collection agency, then there are certain things you can do to protect yourself. Collection agencies are regulated by the Fair Debt Collection Practices Act. This link will explain what rights you have under this act.

You may also wish to visit the forums at the MyFICO.com website. Do a search for "Sears credit card" and you'll find a lot of people sharing their experiences on this matter.

Related Articles:
Will paying off my bills raise my credit score?
I settled credit card debt but collection agency says I owe?

I hope this helps you some. Good luck with your home buying process.

Does a Free Online FICO Score Really Exist?

Reader Question: "I am trying to request my credit score online, and I have seen dozens of websites that offer free FICO scores if I sign up for something. But then I have to pay for some kind of monitoring service. Is there a such thing as a free online FICO score, and if so where can I find it?"

You are not alone in your confusion. We receive an email like yours about once a week. I have yet to see a website online that offers FICO credit scores for free, with no purchase required. Still, it's something you need to know before purchasing a home, so it's usually worth the price.

Like you, I've seen plenty of sites that will give you free scores if you sign up for a monthly service of some kind (such as identity theft protection). This is the most common offer you will find online. And while you do actually get your FICO score for free, you'll end up paying for something.

Here's what it all boils down to:

• Credit reports and scores are two different things, though many people think they are the same. You should review both of them before applying for a mortgage loan.
  
• By law, you can get your reports for free, once every year. And you can do this online by visiting AnnualCreditReport.com. This is the only site recommended by the FTC.
• In addition to your reports, it's also important to check your FICO credit score before shopping for a mortgage loan. This is a key item in the approval process, so you'll want to know how you measure up.
• Regardless of where you get your FICO score online, you'll have to pay for it in some way. You can get it for free by signing up for a credit-monitoring service, or you can buy your scores individually through any of the reporting bureaus (Experian, Equifax or TransUnion).
• So in reality, you cannot get your FICO credit score online for free -- you will have to pay for something along the way. With that being said, you definitely need to know where you stand in this department, so it's a worthwhile investment to make.

What if Your FICO Score is Low?

So let's say you take advantage of one of the free online FICO score offers, and you find out that your score is lower than needed to buy a house. What can you do about it? Well, you'll find dozens of lessons on this blog to help you improve your situation. Here's one in particular I recommend reading:

How to Raise Your Credit Score Fast in 2009?

Now you know the truth about the free online offers you've encountered. Remember, you can get your reports at no cost by using the website mentioned in the bullet points above. But you will have to pay for your FICO score in some way, shape or form. It's an important piece of the mortgage-approval process though, so you should definitely make the investment at least once before applying for a home loan.

I hope this answers your question, and I wish you well in your financial endeavors. If you have other questions about this topic, try typing the keywords into the Google search box at the top of the blog. There are more 150 credit score lessons on this site, so you're bound to find the answers you seek.

This question pertains to free online credit scores and the products that are often associated with them. This article was written for educational purposes only. We make no claims or assertions about FICO scores or the companies that produce them. Nor do we work for any of these companies. In other words, this is an objective lesson on the subject at hand -- and not a sales pitch.

New Credit Card Rules - May 2009 Update

I wanted to take a break from answering credit questions to share some news with you. I've written before about the new Credit Cardholder's Bill of Rights and other credit card laws designed to protect consumers. Here's an update on these new rules that are coming soon.

Last month, this bill passed through the House Financial Services Committee with a vote of 48 - 19. Yes, sadly there were 19 representatives on the panel who sided with credit card companies instead of consumers (big surprise -- they were Republicans).

Yesterday, May 19, the Senate passed its version of the credit card bill by an overwhelming 90 - 5 vote. Next, the Senate version will be merged with the House version, and the resulting bill will be sent to President Obama for review and (ideally) signature.

President Obama has long advocated new credit card rules to protect consumers. If you recall, credit reforms were one of his key talking points during his presidential campaign last year. The President has challenged Congress to expedite the passage of this bill.

Here is a summary of what the new credit card rules will do:

• Credit card companies must give 45 days notice before changing a cardholder's interest rates. This is an increase from the current 15-day standard.
• They must apply customer payments to the portion of the card balance with the highest interest rate first. Currently, most of these companies apply payments to the low-interest balances first, which is obviously more profitable for them.

Be warned. The card companies are already rattling their sabers about these new rules, and they're practically making threats to consumers. It's a pretty safe bet that they'll start jacking up fees and using their other classic tricks to gouge customers.

Here's an example from my own experience. Citi recently hit me with a bogus late fee, even though I had confirmation of my on-time payment. They increased my rate by more than 17% as a result of this. Goodbye Citi bank ... I've already begun to transfer my balance, and ultimately to pay it off. Enough is enough.

New Credit Rules Will Bring New Tricks

Here's what you should take away this. As new credit card rules and laws are enforced, the card companies will do everything they can to compensate. I saw something in the news that claimed late fees and other penalties are a $20 billion / year industry. So you can be sure the credit card companies will come up with a whole new set of "tricks and traps" to compensate for the new rules being created. As a card user, you need to stay on top of this, and you need to keep a close eye on your own interest rate and terms.

The credit card companies have become addicted to a high-profit business model that is built around sly tricks. You would think they could get by with a simple interest-based business model, but that's enough profit for them. They make more in penalty fees than they do from straight interest -- so don't expect them to go quietly into the night.

They have become dependent on their consumer-gouging business models, so they will come up with new tricks to counter the new rules coming their way. You have been warned.

Best Ways to Improve Your Credit Score

Reader Question: I have seen hundreds of articles online about improving my credit score, but I'm wondering what the fastest way is. What's the best way to improve a score quickly? Thanks in advance.

I'm glad to see you're being so proactive about this and doing the research needed. As I've always said, the best way to improve your credit is to focus on the factors that influence your score the most. As you can see from the chart below, there are five categories of data that affect your FICO credit score. You can also see which factors carry the most weight.



If you really want to improve your credit score quickly, the best way forward is what I refer to as the "three-pronged attack."

• For starters, you must pay all of your bills on time -- that means every single bill, but especially your credit accounts. This addresses the blue 35% area in the chart above.
• Secondly, you must reduce your credit card debt. This will improve your financial situation in many ways, but it will also boost your score by improving your utilization ratio. This addresses the red 30% area shown above.
• Third, you must get copies of your credit reports from all three reporting bureaus, and you must review them for errors. Correct any errors you find on your reports, as instructed in this section of the FTC's website.
  

This is by far the best way to improve your credit score quickly. That's why I recommend it over and over again to my readers. Of course, I can't predict how long it will take you to improve your score. This varies from one person to the next, because there are so many other factors at work. For example, a person with a recent bankruptcy on his credit will see slower improvements than a person without such blemishes. While I can't make any time frame predictions, I can assure you that this is the best way to improve your credit quickly.

I hope this answers your question, and I wish you well in your financial endeavors. Continue your research after leaving this website, make a plan for improving your score, and then stick to it. You need to be patient and persistent to get results, but you can do it. I've given you the best path to success -- now the rest is up to you.

Related Article:
How to Raise Your FICO Score Fast in 2009

Late Payments on Student Loans - Impact on Your Credit Score

Reader Question: "I have missed some payments on my federal student loan over the last year or so, but I eventually get caught up on them. My question is, when does a late payment hurt my credit score? Does it get reported right away?"

Legally speaking, a creditor can report a late payment to the credit bureaus at any point, once it is past due. Every company has its own reporting policies, so it varies from one creditor to another. Most credit card companies will report a late payment after 30 days. Mortgage lenders usually go a little longer than that. Student loans and lenders run the gamut from 30 days to 90 days.

The important thing is to avoid making late payments to begin with, if at all possible. I understand that life sometimes gets in the way of this, and sometimes it's a choice between eating and paying a bill. It's an unfortunate situation to be in, but it's reality for a lot of folks.

Here's some motivation for you. If you already have late payments appearing on your credit report (from the student loan company or anybody else), your credit score has already dropped. However, you can quickly turn things around by making your payments on time going forward. Take a look at this FICO scoring chart and you'll see what I mean. Payment history goes a long way toward influencing your overall credit score.

It's also important to realize that a negative entry from a late payment can follow you for a long time. According to the Fair Credit Reporting Act, these kinds of entries can remain on your reports for up to seven years. They tend to have less of an impact on your credit score over time (especially if you change your behavior for the better), but they prevent you from achieving your highest score possible.

Related Articles:

• How Credit Card Use in College Affects You Later
• How to Raise Your FICO Score Fast in 2009

I hope that answers your question. Good luck.

Minimum Credit Score Needed to Get a Car Loan

Reader Question: "Is there a minimum credit score needed to qualify for a car loan, or does it vary from one car dealer to the next?"

No, there is no minimum score for these types of loans, and the standards vary quite a bit. So I am unable to give you a number or even a range for qualification. There's just no way to say what score you'll need to get a car loan, not across the board anyway.

In terms of financing, the auto industry is much more diverse than other industries. The mortgage lending industry, for example, is much more standardized. So it would be easier to give you a credit score range for mortgage qualification. In fact, I've done that in this post. But car loans are a different story entirely. There are just too many variables for me to proclaim a minimum score needed.

So let me just say this. The only way to find out if you can qualify for a car loan with your current credit score is to apply for such a loan. Auto dealers will generally accept a wider range of scores than mortgage lenders will. For example, you probably wouldn't qualify for a mortgage with a FICO score below 650 (not in the current economy anyway), but you could probably get a car loan at that level. The reasons for this are fairly obvious. It's a smaller loan, and thus a smaller risk for the creditor. Thus, they are more flexible with their criteria.

If I were you, I would check out some of the big auto-lending websites, such as DriveTime.com. According to their website, they specialize in car loans for people with bad credit. A quick word of caution though -- be sure to find out exactly how much the loan is going to cost you each month. Lenders charge a higher interest rate to borrowers with bad credit. So the lower your score, the higher the rate. This means a bigger monthly payment. So read all of the fine print and make sure you understand the full cost of the loan.

College Students In More Debt Than Ever - A Trend to Watch

This post is not a reader question, but an addendum to my previous post about college students and credit card use.

I just read a report by Sallie Mae (the largest provider of student loans in the U.S.) that said credit card debt levels among undergrad students has reached record levels. The report was actually dated from last month, April 2009, but it just came to my attention yesterday.

• In 2008, approximately 84% of undergrad college students had credit cards, up from 76% three years before.
• The average balance on credit cards among undergraduates has reached an all-time high. In 2004, the median debt amount was $946. Last year, the median debt rose to $1,645. This is a worrisome trend.
  
• The average debt among college graduates has also risen, from $2,900 to $4,100. Again, it's the trend here that is worrisome -- not the numbers themselves.
  
• Only a small minority of college students (17%) said that they regularly pay off their credit card balances each month. That means the majority are piling up debt during their undergrad, missing their payments due, or a combination of these two things.
  

From a home buying perspective, these trends suggest that college grads will be less and less qualified for mortgage loans as time goes on. Of course, this upward trend could merely be a sign of our tough economic times, and the trend line my go back down as our economy recovers. But it's still a notable change that needs to be addressed.

This kind of growing behavior is exactly what I described in my hypothetical scenario about John and Jane. It seems that an increasing number of college students are falling into the "John" camp -- carrying more debt, harming their credit scores, etc. This troubles me, and it's primary reason I'm writing this post.

Are Colleges Failing Their Students - Financially?

Here's something else that really bothers me. According to the same Sallie Mae survey cited above, most students feel that they are not learning enough about financial management: "Eighty-four percent of undergraduates indicated they needed more education on financial management ... [and] 64 percent would have liked to receive information in high school and 40 percent as college freshmen."

My question is, why are these kids not being educated about responsible credit use, as a mandatory part of the matriculation process? Why are the credit card companies given paid access to campus venues? Why aren't more people worried about these trends, as I am?

Sure, it's a personal responsibility issue. People are responsible for their own financial actions. But it's also an education issue. And education is supposed to be what college is all about. Right?

References:
Study finds rising number of college students using credit cards for tuition. Sallie Mae news release. April 19, 2009.

Credit Card Usage in College - How Does it Affect Me Later?

Reader Question: "Like most college students, I rely heavily on a credit card for daily living (no income at the moment). How will my credit usage affect me later on, like when I want to buy a home someday?"

I'm glad to see you are thinking about these things now, when you're in a position to manage them. There is a strong connection between your current credit card usage, while you are in college, and your financial picture later on down the road. It all comes down to how well you manage your credit and your debt.

The best way I can explain this connection is through a hypothetical scenario. So let's look at the story of John and Jane, two college students who use credit cards to cover certain living expenses.

John - A Credit Nightmare in the Making

John uses his credit card a lot. Hey, he's a college student after all. And like most students, he doesn't have any significant income at the moment. But he does have living expenses that need to be paid for in some way. So he relies heavily on credit.

Unfortunately, he also has a habit of missing his payments, and he has compiled quite a lot of debt as a result.

When John graduates from college and moves into the "real world," he will have two things going against him (financially speaking). He will have a lot of debt and a bad credit score. Your history of making bill payments is a huge part of your credit score, so all of those missed payments will have taken a serious toll on John's score. And since John has nearly maxed out his credit cards, his utilization ratio will be very high. This will also lower his score.

In fact, when you look at this FICO scoring chart, you'll see that payment history and utilization ratio account for the majority of your credit score. So these things will haunt John for quite some time. The late payments will follow him for up to seven years, and the high balances will linger until he makes a conscious effort to pay them down.

So how does this irresponsible usage affect him later on, when he tries to buy his first home? For one thing, he will have a lot of debt to contend with. This will affect his debt-to-income ratio, or DTI, which is one of the key factors a mortgage lender will look at when reviewing his application. The lender will also look at John's credit score, and we have already talked about the damage he has done there.

Sure, you can improve a score, but it can take months or years of "good behavior" to do this. So John has a lot of work to do before he can get approved for a home loan -- or any other major financing, for that matter.

Jane - A Model of Responsible Credit Use

Jane, on the other hand, manages her credit and debt very well while in college. Like John, she also has a credit card, but she only uses it for small purchases. More importantly, she always pays her balance down to avoid accumulating too much debt.

If you're going to use a credit card during your college years, this is the ideal way to use it -- make small purchases as needed, and make regular payments to keep the balance low.

A few years later, when Jane is ready to apply for a mortgage loan and buy a house, she will have an excellent credit score. By making all of her payments on time, and by keeping her balances low, she has been a model responsible credit usage. Her debt-to-income ratio will also be in good shape, because she'll have very little debt to wipe out her income each month. In short, Jane is a good position to purchase a home, as long as she buys within her means.

Use Your Credit Cards Wisely

I am not telling you that you need a credit card to survive your college years. If you can get by without one, that's fantastic. But the fact of the matter is that most college students need credit to cover certain living expenses. If you fall into this category, you need to be responsible with your card usage, because it will follow you for years. Your credit report tracks financial activity as far back as ten years, so your actions in the present can haunt you in the future.

Here are the key points you should take away from this lesson:

• How you manage (or mismanage) your credit now will affect you for a long time.
• If you have to use a credit card while in college, use it for small purchases only, and make regular payments to keep the balance low.
• Pay careful attention to your card balances. Many people rack up a lot of debt simply because they ignore their balances.
• Making all of your payments on time and keeping a low balance are two of the best things you can do to raise your credit score.
• Your card usage in college can affect your chances of getting a mortgage loan later on, so you need to take it seriously.

I hope this answers your question, and I wish you all the best with your financial future.

Related Articles:
College Students and Credit Card Debt
The Best Credit Card Offers We've Found

Why Did My Credit Score Drop Off?

Reader Question: "Last year my credit score was around 720, and I recently checked it and was surprised to see it had dropped to 680. I haven't changed anything, financially speaking. What might have caused my credit score to drop off like that?"

This is a tough question to answer, because I don't know all of the details of your financial situation. There are many things that can cause a credit score to drop, and some of these factors are less obvious than others.

In a moment, I'll offer a list of actions that could have lowered the number. But for the benefit of all readers, I want to point out that you have more than one credit score. A mortgage lender, for example, can pull one score from each of the three reporting bureaus (TransUnion, Equifax and Experian). These bureaus don't always agree, so your TransUnion score could be different from your other two, and vice versa.

Credit Actions That Can Make a Score Drop

Let's move on to the factors that might cause a credit score to drop off. In reality, there are more factors than I can list within this response. So I've narrowed down this list to the most common causes of a score dropping.

You should keep this FICO scoring chart in mind as we talk about the items on this list. I'll refer back to it often.


Here are some possible causes to consider:

Credit Limit Lowered -- If your card company (or companies) have lowered your credit limit(s) recently, it could negatively affect your overall score. It would inflate your utilization ratio, which measures how much of your available credit limit your are currently using. In other words, a lowered limit makes it appear that you are using more of your total limit, which is a big factor in credit scoring models. See "amounts owed" in the chart above.

Credit Usage Increased -- This is another way you could increase your utilization ratio, thereby causing your score to drop off. If your credit limits have stayed the same, but you are using more of those limits, it can have the same negative effect on your score. A "double whammy" can occur when you are using more of your limit at the same time the limit is lowered by your card company. This will make it appear (to a scoring model) that you are maxing out your credit cards. Your score will drop even more as a result of this.

Unpaid Bills / Late Payments -- You can see by the scoring chart above that your payment history influences your FICO credit score more than any other factor. So if you've been missing payments on something, and the creditor has reported it to the credit bureaus, it can take a big toll on your score. Sometimes, this scenario is fairly obvious. People ignore their bills for whatever reason, and their score drops as a result. Other times, a person might not even know about the late or missed payment. I see this happen a lot with medical bills that were added on after a procedure, often without the patient's knowledge.

Applying for Credit -- If you have been applying for a lot of credit cards or store accounts recently, it could have a negative impact as well. Normally, this won't drop your score by much, but it is one of the influencing factors. See "new accounts" in the scoring chart above. When you make many inquiries and credit applications in a short period of time, it has an even greater affect. Still, this factor is not nearly as strong as the ones listed above. So I would consider it last.

Those are the primary reasons your score might have dropped over the last few months. But like I said, there is certainly more to the picture than this. If you need advice on improving your score, you'll find plenty of it here on this blog. I recommend using the search box at the top of the site to find more advice on this subject.

Will a Loan Modification Hurt My Credit Score Any?

Reader Question: "My husband and I are pursuing a loan modification to lower our monthly payment. I was wondering if this would affect my credit score at all, or would it make a difference at all. Thanks."

In most cases, a mortgage loan modification would not affect your credit score at all. If your lender modified the loan in some way, they would probably do it to help you avoid foreclosure and stay in the home. So in this kind of scenario, you would be able to continue making your monthly payments. The lender would have nothing negative to report, so the modification would not impact your credit score in any way.

Again, this is usually what happens when a lender or loan servicer modifies a mortgage. But there are exceptions to every rule.

While the modification probably won't hurt your score, there is still a connection between the two. When to try to change a home loan in some way, whether its by refinancing or modifying, the lender will typically review your credit score. They do this to see what kind of interest rate you're qualified for, given your current score and other qualifying factors.

If you're in need of a home loan modification, it probably means you are falling behind on your monthly mortgage payments. In that case, your top priority should be staying in the home -- if it's at all possible to do so. If you feel that your financial problems are temporary, and you can get back on track with your mortgage payments, then focus your energy on the modification and don't worry too much about your credit score right now. Like I said, a loan mod should not hurt your score in any way. Not in most scenarios, at least.

I hope this helps you out. If you have other questions about this topic, type them into the search box at the top of the blog. You may also want to review the articles listed below.

Related Article: How do home loan modifications work?

Good luck with your mortgage mod. I hope it all works out for you. If you'd like to update me later on with the status of your situation, I can add it to this blog post to help other readers.

Fact Sheets - Helpful Facts About Your Credit

There are literally hundreds of articles across this website, on a variety of topics related to consumer credit. But we find that many consumers and home buyers have the same questions about their credit, so we have put together some helpful fact sheets on these topics.

Note: All of these links go to Acrobat PDF files that you may download and print. Document size varies from 1 - 3 pages.

What Determines My FICO Credit Score?
When you apply for a mortgage loan, or any other type of financing, your credit score will play a role in getting qualified. So it's important to maintain a good score. Understanding what goes into a credit score is the first step to achieving this goal. Download this fact sheet for more information.

The Truth About Free Credit Reports
There is a lot of confusion around free credit reports, and it's mostly the result of marketing and advertising. In this fact sheet, you can get the straight scoop about credit reports. You'll also learn why this is such a confusing topic for many people.

Credit Repair Scams to Avoid
The vast majority of "credit repair" companies are scams. They make big promises but fail to deliver on those promises. This is why there are so many government warnings against these companies. Download this fact sheet to protect yourself from financial predators.

How to Improve Your Credit Score
This is by far the most frequently asked question we receive from visitors. What can I do to improve my score so I can qualify for a loan? What steps do I need to take? And how can I do it as quickly as possible? You'll find the answers to these questions (and more) in this helpful document.

We will add new fact sheets to this page on a regular basis. You can always reach this page by clicking on the "Fact Sheets" link in the upper-right menu.

How Credit Scores are Calculated

Reader Question: "How are credit scores calculated and what can I do to improve mine? Is there a website somewhere that explains how they are calculated?"

Let me start by saying there are many different types of credit scores. But the one you're probably referring to is the score produced by the big three reporting companies. Your FICO score, in particular, is the one used most often by mortgage lenders and other creditors. So let's talk about how it gets calculated and what you can do to improve it.

How It Gets Calculated

Your scores come from your credit reports, which are produced by the three companies shown in the image below. Each company has its own unique process for compiling data and producing reports.

But when it comes to converting that data into a credit score, they are all calculated pretty much the same way. The date found within the report is put through some kind of scoring model, and that is how the final number is produced.



As far as the FICO scoring model goes, there are five key factors that influence the final score. The range runs from 300 on the low end to 850 on the high end. The higher the score, the better it is for you.

The image below shows what these five influencing factors are: (1) your history of bill payments, (2) the amount you currently owe across all credit accounts, (3) the length of your credit history, (4) new accounts, and (5) the types of credit that you are currently using.



You can see by the percentages above that these factors carry a different amount of "weight" when your credit score is calculated with this model. The two things that influence your number the most are payment history and amount owed. So if you pay all of your bills on time, and you maintain a low balance on your credit cards (relative to the available limit), you'll be able to maintain a good score.

Improving Your Score

Understanding how a score is calculated is the first step to improving it. So if you find that your numbers are low, you should focus your effort on the things we've talked about above. You should work hard to pay all of your bills on time. You should reduce the credit card balances you currently owe, to improve your "utilization ratio."

You should also get copies of your reports from all three reporting bureaus and read through them for accuracy. Correct any errors you find in your reports, since they can lower your score more than it should be.

Now that you know how your credit score is calculated, there's nothing stopping you from improving it. There really is no mystery to all of this. Some people make it more complicated than it is, but I recommend keeping things simple. Focus on the major factors that influence your score. Put your effort where it counts the most, and you'll see the best results in the shortest time.

Here are some more articles on the blog that complement this one:

• How to Raise Your Score Fast?
• How Do I Improve My Credit History?

I hope this answers your question. Remember, there's a lot of information on this website. So if you have additional questions about anything we have discussed here, use the search tool at the top of the site. You can find articles and advice on nearly every aspect of credit reports and scores -- how they are calculated, how to improve them, the minimum needed to get a mortgage loan, and much more. Good luck.

How to Get a Mortgage Loan in 2009

Your credit score is an important part of the mortgage qualification process. But it's not the only thing you need to get a mortgage loan in 2009. Our economic recession has resulted in a tougher lending environment, where borrowers must be well qualified in order to get a loan. If you ask me, that's the way it should be, but I'll keep my personal views aside for now.

In this post, I want to tell you how to get a mortgage in the 2009 economy. Specifically, I'll explain the key factors a lender will look at when considering you for a loan. Score well in these areas, and you'll have no trouble getting a home loan in 2009.

Credit Score -- Every lender has different standards in this area, so it's impossible to say exactly what minimum score is needed to get a mortgage in the current economy. With that being said, you will probably need a score of 660 or higher to get approved for a loan. If you want to get the best interest rates on the loan (and you do), you'll probably need a 750 or higher.

Down Payment -- Most lenders today will require you to put at least 10% down when you buy a home, and some will even require 20% across the board. You can qualify for an FHA loan with less money down, as little as 3.5% of the purchase price. Regardless of the type of mortgage you get, you will have to put something down. So start saving your money now.

DTI Ratio -- When you apply for a loan, the lender will also check your debt-to-income (DTI) ratio. This is the amount of your monthly income that goes toward your various debt payments. If you have a lot of debt in relation to your income, then you have a high DTI ratio. This will make it harder to get a mortgage loan in 2009. Once again, every lender has its own standards, but 30% is a good rule of thumb. You want to have a DTI ratio of less than 30% to get qualified for a mortgage loan.

Steady Income -- When you submit your application, you'll have to include w-2 statements for the last two years. Some lenders will want to see your income as far back as five years. They will probably ask to see your pay stubs or direct-deposit records as well. They are trying to ensure that you've had steady income over the last few years, with a salary that has either stayed the same or increased.

Spending Limits -- This is not something you need to qualify for a home loan. This is something you need to keep yourself out of trouble down the road. Before you even start talking to lenders, you should establish your home buying budget. The bank cannot tell you what you can afford -- they can only tell you the amount you're qualified to borrow. And believe it or not, it's possible to get a mortgage loan that's too expensive for you. Look at the foreclosure rate in this country, and you'll see what I mean.

So there you have them, the key factors a lender will look at when considering you for a loan. If you feel you measure up well in these areas, then there's a good chance you can get a mortgage to buy a home, even in the bumpy 2009 economy. If this is the case, and you're ready to move forward, start getting quotes and comparing offers.

How Do I Improve My Credit History Quickly?

Reader Question: I need to boost my credit score so I can qualify for a mortgage loan. What can I do to improve my credit history as quickly as possible?

You can certainly improve your score over time, but there's not much you can do to improve your history if it's accurate. If you have negative information in your past, and it is showing up on your credit reports, it can be reported for up to seven years (or ten years for a bankruptcy filing). You cannot remove negative entries from your report if they are on there legitimately. You can have errors corrected on your reports, but you cannot have accurate information removed before its "expiration" date.

But while you cannot improve your credit history by erasing it, you can certainly improve your score over time. The first thing you need to do is figure out why your score is low in the first place. In other words, you must identify the behavior that led to a bad score, and do whatever is necessary to correct that behavior.

For example, if you have a history of paying your bills late, you need to change that behavior immediately. If late payments are showing up on your credit reports, they can stay on there for up to seven years. But if you continue to make late payments on your bills, you'll never escape the problem. It will continue to harm your credit score until you correct the behavior. When you start paying bills on time, your score will begin to improve over time -- not because you have changed your credit history, but because you have changed the behavior.

There are a lot of so-called credit repair companies out there that claim to have tricks and loopholes to help you improve your credit history. But the vast majority of these companies are scam artists who charge upfront fees but offer nothing in the long run. There are no magic fixes to improving your history, because it is what it is -- it's history. By definition, it has already happened and cannot be changed. The best thing you can do is accept the mistakes you've made in the past, and make every effort to avoid those mistakes in the future.

There is little you can do to improve a bad credit history, but there's plenty you can do to improve your score going forward. Fix the behavior that led to the bad credit score, and the rest will follow.

You can find plenty of advice on this website to help you accomplish this goal. Here's an excellent place to start. This article explains the five things you can do to increase your score quickly:
How to Raise Your Credit Score Fast

If you have any other questions on this subject, I recommend using the search tool at the top of the blog. It's the quickest and easiest way to find articles, tutorials and Q&A sessions. There are more than 175 credit lessons on the site, so you're sure to find the information you seek. Good luck.