Retirement & Financial Planning Report

Now that the housing bubble has burst, you no longer can get a mortgage just by asking for one. These days, homebuyers need a down payment and proof of regular income.

Homebuyers also need a decent credit score. The higher your score, the more likely you’ll get a loan at a low interest rate.

Fair Isaac Corp., Minneapolis, creator of FICO credit scores, says that a Virginia resident with a 650 credit score would pay $1,138 a month for a 30-year, $200,000 fixed mortgage. If that borrower can boost his or her score to 660 before applying, the monthly payment would be only $1,085.

A borrower with a FICO score of 723, the national median, would pay only $1,038 a month for that same loan. FICO scores go up to 850 but a borrower with a credit score over 760 probably will get the lowest interest rate: $1,011 a month.

In this example, therefore, a borrower who increases his credit score by about 70 points, from 650 to 720, would save $100 a month in interest: the monthly payment would drop from $1,138 to $1,038. That’s a saving of $1,200 a year, every year that loan is outstanding.

To increase your credit score, make all payments on time and pay at least the minimum amount due. Try to keep the balance on each of your credit cards below 35 percent of the available credit on that card.