Credit is King

• When it comes to home loans, mortgage lenders know that credit is king. Because of this, borrowers with bad credit will have to pay higher fees and interest rates on their mortgage loans. If you fit that description, this is bad news.
  
  For lenders, though, it makes economic sense. If you have a history of missing payments, the odds are good that you won't always make your mortgage payments on time, either. You're also a greater risk to eventually default on your home loan. Lenders protect themselves financially by charging you higher fees and interest rates.
  
  Higher interest rates do make a difference, too. If you took out a $250,000 30-year fixed-rate mortgage loan with an interest rate of 7 percent, you'd face a mortgage payment of $1,663.26 a month. If you took out the same loan with a lower interest rate of 5.02 percent, your monthly payment would fall to $1,345.11. That's a difference of $318.15 a month, or $3,817.80 a year.
  
  

Fix Your Credit

• There's no way around this: You will have to pay more to get a home loan if your credit is bad. Fortunately, you can take steps to repair your credit. Just realize that such steps will take time to result in higher credit scores.
  
  First, resolve never to miss a payment or pay late again. Create a new history of always paying your bills on time. Secondly, pay down your debt levels as quickly as you can.
  
  Finally, order copies of your credit report by logging onto the Web site, AnnualCreditReport.com. This site, founded by the national credit bureaus--TransUnion, Equifax and Experian--won't charge you to access your report. You can then check this report for any errors. If you do find mistakes, write a letter to each of the three agencies. You can find instructions on how to do this at each agency's Web site. If they're taken off your record, your credit score will improve.
  
  Unfortunately, all of this takes time.
  
  

Don't Fall for the Scammers

• The Internet, not to mention radio and late-night TV, is littered with ads for companies that promise to improve your credit score overnight. Avoid these companies: They are selling something that is impossible.
  
  If you have a history of missed payments, no credit company can erase it. If there are mistakes in your credit report, you can find them for free. There's no reason to waste money on the services provided by these private credit companies.
  
  These scammers prey on consumers desperate for a quick fix. The truth, though, is that it takes a long time to repair your credit. It may make financial sense to wait to apply for a home loan until after your credit score has risen. If you don't wait, you're certain to pay more to borrow that mortgage money.