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The standards for loans and mortgages are getting tougher. Last year, to qualify for the lowest interest rates, consumers needed a credit score of at least 650 points out of a possible 850. Now, credit companies say the bar is up to 680. On a 15-year, $50,000 home-equity loan, for example, that could mean the difference between a rate of 10.2% or 11.7%.
To avoid higher rates or outright rejection, go online and grab your free yearly credit report at AnnualCreditReport.com. The site, which provides results from all three credit reporting agencies (Experian, TransUnion, and Equifax (EFX
)), will let you know if you're being penalized for late payments or if you may have missed other credit problems.
Next, go to myfico.com and check out the most widely used credit score—the FICO score provided by Fair Isaac (FIC
), a financial data giant. For $15.95, you can learn how you rank compared with other would-be borrowers and get scores from the main credit bureaus.
If your ratings are below par, the best way to boost your borrowing profile is to make on-time payments and to keep your credit card balances below 35% of their limits. It will take six months to a year for your score to improve dramatically. Meanwhile, don't open new cards or rush to close a bunch of them. Both actions will set off alarm bells. If you've postponed buying new storm windows or insulation, now is the time to do it. And it's not just to get everything in place before winter. A federal tax credit for these energy-saving measures expires at yearend, and neither the House nor Senate version of the pending energy bill extends the break. The credit amounts to 10%, up to $500 total, of the cost of insulation, storm windows, and certain energy-saving roofs.
If you want to go solar, however, Congress has given you an extra year to reduce your tax bill. You now have until the end of 2008 to claim a credit for up to 30% of your costs, to a maximum of $2,000, for buying and installing certified solar heating panels, a solar water heater, or a qualified fuel-cell electricity generator in any residence you own.
The one caveat for these credits: You cannot claim either of them if you wind up having to pay the alternative minimum tax, which is triggered if various deductions reduce your regular income tax below an amount set by the Internal Revenue Service. For other details on energy credits, go to irs.gov and type "energy policy act" in the search box. To see if your state offers a tax break, check the database at dsireusa.org. Most personal finance software focuses on keeping track of expenses, managing investments, or creating a retirement plan. But a new program called Financial Fate helps you peer into the future to see whether you're headed for a comfortably solvent life—or bankruptcy. Developed by Aydren Simmons and Monty Hothersall, former corporate cash-flow experts, Financial Fate first asks you to enter 10 categories of data, such as income, mortgage, other debt, annual expenses, investments, and projections for future years. The software then tells you how you will end up financially. By making adjustments, such as increasing your projected income, you can see what you must do to achieve your desired results. The program is $69.95 at financialfate.com.