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Risk #4: the credit crunch

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By George Mannes, Money Magazine senior writer

After making all those colossally dumb loans, financial institutions are now punishing you for their sins. According to a Federal Reserve survey in January, the percentage of senior loan officers raising standards on traditional mortgages jumped to 53%, up from 41% three months earlier. This marks the biggest shift to caution in at least 17 years.

But it's not just mortgages. It's now harder for you - even if you have good credit - to obtain other types of consumer loans, like an auto loan or a credit card. The news is even worse if you've got a less-than-perfect credit history. There seems to be no end in sight.

As Fed chairman Ben Bernanke told a Senate committee in February, "More-expensive and less available credit seems likely to continue to be a source of restraint on economic growth." Translation: Lenders who would have poured cash all over you a year or two ago will now be focusing on all the reasons they shouldn't. Thanks, guys.

So if you need financing soon - whether for a car or a home - borrow now, before lenders slam the door even tighter and raise rates to boot. True, the Fed cut the benchmark rate on overnight bank loans by two percentage points from January to March, to 2.25%.

But experts polled by Bankrate.com still predict that mortgage rates will rise. The National Association of Home Builders forecasts that average 30-year mortgage rates will climb from 5.9% this year to 6.3% by year-end 2009.

Another reason to make haste: the possibility of recession and job loss. "If you're not employed, you're done," says Chicago-area financial planner Ed Gjertsen II. "You're not going to be able to get credit." So if you've been thinking about refinancing, don't wait.

The best hedge: a HELOC

Also consider a home-equity line of credit now. Yes, banks have gotten antsy about HELOCs that they've extended in the past. But if you've got sufficient equity in your home and a decent credit score, a HELOC can be a safety net that you can set up now - and you won't have to have oodles of cash on hand.

There's huge variation in pricing of HELOCs around the country, says Keith Gumbinger of HSH Associates, but the best deals tend to come from credit unions and smaller lenders. To find the lowest rates in your market, visit Bankrate.com or click on the widget at the right on page one.

A recent search of the site found that in St. Louis, Heartland Bank offered an interest rate of prime minus half a point (translating into 5.5%) with no up-front or annual fees. Find a deal like that in your area and you'll be able to sleep just a little bit easier tonight. To top of page

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