Avoiding Dangerous Loans

Here are some tips:

Risky loans were around long before the current credit crunch, and they’ll survive a good while more. Here are some things to look for to avoid trouble:

1. DEMAND A GOOD-FAITH ESTIMATE. By law, lenders must provide this list of charges to each borrower after the borrower initiates a loan request. It details all the expenses that go into making a home loan, and discloses the interest rate. Compare it to the HUD-1, also required, that comes just before closing and demand an explanation for any discrepancies.

2. DEMAND AN AMORTIZATION SCHEDULE. This will show how much you’ll pay every month, and for how long. It can get tricky with adjustable-rate mortgages, because rates will change. In that instance, expect an adjustable-note rider.

3. GET HELP. Have someone besides your real estate agent or lender review loan documents. The member directory at the Iowa Home Ownership Education Project, (888) 994-4637, or www.ihoep.com, will lead you to financial planning and housing advice agencies in each county.

Source: Neighborhood Finance Corp.

Improve your credit score

Credit scores are crucial to determining whether you'll qualify for a loan, and the rate that you will be charged. It's smart to work on getting and maintaining the highest score possible. Fair Isaac Corp., a leading provider of credit scoring information, provided these tips, stressing that they need to be done consistently:

1. PAY ALL BILLS ON TIME. Definitely credit card bills and loans, but also utility bills, parking tickets, library fines – anything that might be reported to the credit bureaus. The single worst thing you can do to your FICO score is to miss a payment that is reported on your credit report.

2. KEEP CREDIT CARD BALANCES LOW. Remember that your FICO score can only see the balance that appears on your credit report, which typically is also the balance that your credit card issuer last billed you. The lower your reported balances, the better for your FICO score.

3. OPEN CREDIT ONLY WHEN YOU REALLY NEED IT. That means avoiding those tempting card offers at the retail store checkout or the ones mailed to your home – unless you genuinely need the new credit.

Source: Fair Isaac Corp.