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Help with the loan hunt
With interest rates on the rise, here are 5 things to know if you need to get a loan.
December 1, 2005: 4:02 PM EST
By Gerri Willis, CNNMoney.com contributing columnist
Mortgage Rates
30 yr fixed 3.80%
15 yr fixed 3.20%
5/1 ARM 3.84%
30 yr refi 3.82%
15 yr refi 3.20%

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NEW YORK (CNNMoney.com) - If you're looking for a loan, it's a very scary time. Interest rates are on the rise and with them, mortgage delinquencies are increasing.

In today's top 5 tips we're going to tell you what you need to know if you're out shopping for a loan.

1. Don't believe everything you hear

Banks have been bending over backwards to offer mortgages to consumers with low introductory rates, teaser rates and all kinds of mortgage products from jumbo loans to hybrid adjustable rate mortgages.

But these products are not always a good thing.

One class action lawsuit filed in Milwaukee on behalf of homeowners says they were misled by lenders. They believed they were locking in a mortgage rate of 1.95 percent for five years. Instead the lock only lasted for 30 days. They face a rate ceiling of 13 percent.

The lesson here is that, if the terms of the deal seem too good to be true, it probably is.

2. Know what it all means

As you know, your credit report basically determines how loan-worthy you are, and the report is based on your credit history. That includes how many credit cards you have, how well you make you payments, your debt load, your available credit and whether other lenders have inquired into your report.

Your credit score is based on your credit report. So, of course, the higher the score, the better your credit rating is. And the better your credit rating, the more favorable loan rates you'll get.

So if you're looking to buy a car or take out a mortgage, you'll probably get a better interest rate if you have credit is above 620. Most credit scores range from 300-850.

3. Trouble Shoot

One out of four credit reports had errors serious enough to deny the consumer credit, according to a study by the US Public Interest Research Group. That's why it's so important monitor your credit report.

Yet only 10 percent of Americans check their reports annually, says Steve Rhode of Myvesta.org.

Go to www.annualcreditreport.com or call or call 1-877-322-8228 to get more information on your report. This way you'll be able to identify mistakes or missing information plus you'll be able to catch any fraudulent activity. But you'll have to pay more to get your actual score.

To get an estimate of your score for free, check out bankrate.com's Web site under calculators. To figure out what interest rate you're likely to be offered with that score, go to www.bankrate.com and click on compare rates and home equity.

4. Fix your score

If you have discovered an error in your report contact your credit bureau. Get more details about your rights from the FTC at www.ftc.gov/os/statutes/fcrajump.htm.

When you receive your report, you should by law also receive a fact sheet detailing all your rights. Generally, negative information more than seven years old cannot be reported

But if that debt is indeed yours, paying your bills on time is one of the most important steps you can take in cleaning up your credit, says Greg McBride of Bankrate.com. That alone counts for 35 percent of your score.

Make sure your debt load is not more than 50 percent of your available credit. Allen Fishbein of the Consumer Federation of America says that often people close down their credit cards to decrease the amount of credit they have. But this lowers your credit limit making your debt to credit limit ratio increase.

And do not transfer your debt onto that 0 percent introductory interest rate credit card. "That is a marketing tool," says Rhode, "Not a personal finance tool." If you don't pay off your balance within the introductory period, your interest rate could zoom into the double digits.

5. Your lender doesn't have your back

Two years ago congress passed a law that said lenders must notify consumers when their credit scores have negative information that triggers a less favorable rate quote. Guess what? Affected consumers still haven't gotten their letters.

The FTC has not even issued the date for when this policy will go into affect. The point is that you should be vigilant against negative marks on your credit report.

_____________________________

For all the latest Five Tips columns, click here.

Gerri Willis is a personal finance editor for CNN Business News and the host for Open House. E-mail comments to 5tips@cnn.com.  Top of page


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