According to Carey Hollander, Certified Mortgage Planner and President of Patriot Home Funding in New York, "One's credit score is everything today. A year ago you could have financed a house with no money down with damaged credit. But loan guidelines have tightened over the past year. Today, those with damaged credit must have at least a 20% down payment."

This is alarming news for those with low credit scores. A low credit score today means that you'll be charged a higher rate AND higher bank fees. "As of January 1, 2008, Fannie Mae and Freddie Mac are charging points to consumers who have a score below 680. And the lower the score, the more points charged," Hollander reports.

"Points" are fees paid to the lender at closing in order to lower your interest rate. Each point costs 1% of the loan, so if your loan amount is $250,000, one point equals $2,500. Those points can add up to lots of cash at closing.

This doesn't bode well for first-time buyers who might not have $50,000 to put down. "First-timers in the current real estate climate will have difficulty," says Thomas Frasca, Associate Broker at Century 21 V.J.F. Realty. "With a low credit score, you need a substantial amount of cash."

All of this makes it imperative for home buyers with damaged credit to start boosting their scores. The first step is to get a copy of your credit report from all three reporting companies - Equifax, Experian, and TransUnion-and look them over carefully for any mistakes or outdated items. Go to "Your Access to Free Credit Reports" at ftc.gov/bcp/conline/edcams/cre dit/ for more information.

Next, work out a budget and stick to it. If you are not disciplined enough to do this, it might make sense for you to contact a credit counseling service. Also, don't count out the possibility of your creditors working with you to schedule a new payment plan with lower monthly payments you can afford.

If you already have good credit, make sure you maintain it. "One way to maximize your score is to keep your credit usage at 30% or less," says Hollander. "For example, if you have a $1,000 credit card line available, keep your balance below $300. It is much better to spread your debt out over a few credit cards than to lump it all on one or two cards. Once you exceed 30% of your available credit, your scores are reduced 10 to 20 points, then reduced by the same amount again once you exceed 50% usage."

In today's real estate environment, where loans in foreclosure are reaching record highs, your credit score is more important than ever. It is the only way lenders can tell how likely you are to repay the loan, so make sure you monitor and maintain your score in order to get the best rates available.

Learn more about this author, Diane Callahan.
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