2008 outlook: Credit and savings

Even if you have good credit, you won't be able to borrow as easily or cheaply as in the free-lending days of the past few years.

By Asa Fitch, Money Magazine staff reporter

(NEW YORK) Money Magazine -- As for "innovative" loans, like the no-documentation, no money down loans that made subprime mortgages such a phenomenon, well, you've probably seen the last of them for a while.

"The pendulum swung way too far to the side of easy credit," says Greg McBride of Bankrate.com, "and now it's swinging back."

Make money in 2008:
The entire outlook

So whether you're looking for a mortgage, a home-equity line of credit or even an auto loan, be prepared to jump through more hoops to prove your creditworthiness to lenders.

No doc has yielded to lotsa doc: To get a loan next year, you may need to provide more backup verifying your income and assets (tax returns and account statements, in addition to salary confirmation from your employer). And you'll need a higher credit score to get the lowest interest rate.

"A year ago a credit score of 720 would have been good enough to get you the best rate," says John Ulzheimer, president of consumer education at Credit.com. "Now to get the same deal, you've got to be in the 750 range."

As for yields on CDs and money funds, economists expect them to hold steady or even go down a bit next year, in keeping with other short-term interest rates. With payouts on top-yielding CDs recently about a point higher than the average money fund yield, locking in a higher rate with a one-year CD looks like a good idea.

Going for a longer-term CD at this point is a gamble, however. The reason: Although most economists expect rates to remain steady over the next year or so, some think they could go up sharply because of growing anxiety about inflation and the falling dollar.

The wild card: If the credit crunch gets much worse as the economy weakens, Fed chairman Ben Bernanke might keep lowering short-term interest rates to stave off a bigger, badder downturn.

That would make borrowing cheaper but could leave you regretting you didn't lock in 5 percent yields on long-term CDs while you had the chance.

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