thermometerGetting the best interest rates on major purchases, whether that's a house or a car, can be much harder with today's stricter credit standards. Credit scores must be higher, and so does the amount you plan to put down on a house, even to get a mortgage.

In 2006, when I wrote my book, The Complete Idiot's Guide to Improving Your Credit Score, you could get a 0% down home loan with a credit score of 720 and still get the best interest rate. Today in order to get the lowest rates for a home loan, you'll need at least 10% down and a credit score of 760 or higher. For a 15-year equity line, you'll need a score of at least 740 and you'll only be able to get a loan for up to 80% of your home's value. In 2006, you could get a loan for as much as 100% of the home's value. Loans for as much as 125% of the home's value were also available, but you wouldn't get the best interest rate.

Be prepared
Every time you open a new account, you can expect your credit score to drop at least 20 points, so if you're thinking of a major purchase in the next six months to a year, don't even think about opening a store credit card to take advantage of an immediate discount. That 10% or 20% discount on one small item could blow your chances of getting a better interest rate on a mortgage, equity line or car loan. That could end up costing you hundreds or even thousands of dollars if your credit score falls out of one of the higher categories.

So what kind of interest rates can you expect based on your credit score? I developed the credit score chart below to compare interest rates as of January 10, 2010, for a $200,000, 30-year fixed-rate mortgage, a $50,000 15-year equity loan and a $25,000 36-month car loan using FICO's score information.

Interest Rates and Payments by FICO Score
Interest Rates as of Jan. 20, 2010
Fico Score 30-Yr Fixed Mortgage 15-Yr. Equity Loan 36-Month Auto Loan Payment on $200,000 home
760-850 4.67% $ 1,033
700-759 4.89% $ 1,060
680-699 5.07% $ 1,082
660-679 5.28% $ 1,108
640-659 5.71% $ 1,162
620-639 6.25% $ 1,232
Payment on $50,000 Loan
740-850 7.79% $472
720-739 8.09% $480
700-719 8.59% $495
670-699 9.37% $518
640-669 10.87% $564
620-639 12.12% $604
Payment on $25,000 Loan
720-850 5.72% $757
690-719 7.36% $776
660-689 9.38% $799
620-659 13.20% $845
590-619 18.04% $904
500-589 18.68% $912

Of course, it's possible that you'll be able to negotiate better rates with your bank, but this chart will give you an idea of what the national rates are. If you live in one of the states hit hardest with foreclosures, such as Arizona, California, Nevada or Florida, you might find that rates are even higher in your area, credit score requirements are tighter, and the amount you'll need to put down to get the best rates is higher still.

Taking a close look at the chart will show you what you can most likely expect to pay. For instance, if your credit is 689, you'd pay 0.40% more in interest for a mortgage than you would if your score was 760 or above. A score as low as 638 would mean that you'd pay 1.58% more. Those may sound like small percentages, but they mean big bucks when you think about the life of a 30-year home mortgage. Using BankRate.com's amortization calculator, for instance, I found that a person with a 699 credit score who took out a 30-year mortgage at the rate of 5.07% would pay about $17,400 more in interest over the life of the loan than would a person with a credit score of 760 or more. And if someone had a credit score of 639, he or she would pay $71,000 more over the life of the loan.

So if you're thinking of a major purchase, your first step is to check your credit score. You can do that for free at CreditKarma.com. You may also want to check out the Credit Score Simulator to test how certain credit actions will impact your score.

If you find that your score is below 700, work on improving that score before you try to apply for any major loans. Here are some key things you can do to help improve your score quickly:

  • Pay your bills on time. That's the number one thing that drives a score lower. In fact, if you're an on-time payer and all of a sudden miss one or two payment deadlines, your score could drop as much as 125 points.
  • Pay down your credit cards to a utilization rate of no more than 30%. For example, if you have $10,000 of allowable credit, you should carry no more than $3,000 in credit card balances.
  • Don't apply for any new credit. Each time you apply for a new credit card or loan, your credit score goes down by as much as 20 points.
  • Get a free credit report from each of the three credit bureaus at AnnualCreditReport.com, and correct any mistakes you find. You can get one free report every year from each of the three credit bureaus.
The process of correcting errors on your credit report and then waiting until your credit score improves can take at least six months. If you haven't paid bills on time or carry a high balance, it could take a year or more to really improve your credit score. But it's time well spent. So take the time to get your credit score over 700 before you go shopping for any big purchases, like a house or a car. You'll save a lot of interest and ultimately be able to afford what you want more easily.

Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Improving Your Credit Score and Surviving a Layoff: A Week-by-Week Guide to Getting Your Life Back Together.

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Dereck

Do yourself a "HUGE FAVOR" and carefully read this:

The 21st Century Act: Final Amendments to Regulation CC Section:
"Prohibits" reimbursement of Credit, Loan, and Finance Balances to a "Bank Entity" leaving only "Nonbank Consumers" able to receive reimbursement, as specified on Pages 85 and 86.

The 21st Century Act states on pg. 85 and 86 that "Only Nonbank Consumers can suffer losses and File for
Re-credit or Re-claim on any Accounts under the Federal Reserve System" also “Any Second or Third Party Presenters utilizing a Banks Documentation, Contracts and/or Agreements to seek Claims shall be considered to be that Bank under the Rules and Regulations”, the Expanded Definitions also includes Credit Cards and Home Equity Lines of Credit.
Also on Pages 100 and 101 "In any Financial Claims the Indemifying Bank (Parent Bank) must be Identified".

(Left-Click to Search Link)
21st Century Act: Final Amendments to Regulation CC http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040726/attachment.pdf

This Federal Law signed January 1, 2006 makes it "Fraudulent" and therefore "Illegal" for the 3 Major Personal Credit Reporting Agencies: Equifax, Experian, and TrasUnion to allow the Banks and the Banks "Third Party Presenters" to place any claim of "Negative" or "Potentially Negative" Accounts on your Personal Credit Based upon the fact that they have no "Legal Grounds or Claim" to the Money.

This is an "Unfair Practice" that diminishes our Financial ability to support ourselves and adversely affects our ability to gain work in many areas which breaks "Antitrust Laws".

These Rules also back claims of: "Aiding and Abetting" Racketeering and Extortion (of Finance Accounts and Personal Credit Reports), Pandering (of Credit and Loan Accounts, and Conspiracy to wit), Theft, Fraud, Federal Mail Fraud, and Telephone Harassment. Also "Threatening of the U.S. Financial Infrastructure", which is a "Capital Crime".

In order to engage the Federal Trade Commission to act against this injustice we must File many Claims, as these Reports must be Filed by a large number of people in order for the Federal Trade Commission to pursue
"Legal Action".

(Left -Click to engage Email Address)

antitrust@ftc.gov

This is way easier than "Occupying Wall Street"!

March 11 2012 at 6:22 PM Report abuse rate up rate down Reply
Carol

While I was looking for a credit report site, my firend told me about a site, that offer:

- 100% Free 3 in 1 Credit Report
- Credit Monitoring
- Fraud Protection

All in one...

I tried it and I'm so satisfied with them.I just wanted to recommend you that site:

---www.CreditReportFrees.info---

January 12 2012 at 5:33 AM Report abuse rate up rate down Reply