Credit: Harder to Come By

Even with optimistic prognostications for economic recovery pouring in (thanks largely to yesterday’s payrolls report), don’t expect credit to be much easier to come by. The credit market has been heavily damaged, and financial institutions are not likely to forget that fact anytime soon. Indeed, credit has been tightening, and it is not likely to loosen for quite some time.

For those looking for a 0% balance transfer credit card, the news is pretty bad. You are unlikely to find a good deal on a credit card, and the debt management methods that usually follow such a course are likely to become less effective. Indeed, the tightening of credit card availability is likely to be further exacerbated by the recently passed Credit CARD Act of 2009. While the intentions are good, and many of the reforms are sorely needed, credit card issuers are likely to begin tightening their requirements, raising their fees and slashing rewards programs.

Getting a loan with the tighter credit requirements

You will still be able to get a loan, even with the tighter credit requirements. However, you may have to work a little harder for it. Whether you are trying to buy a car or purchase a home, here are some things to keep in mind:

• Down payment: The bigger your down payment, the better your rates — and your chances of getting approved in the first place. The larger your down payment, the smaller the amount being financed. And that is in your favor.
• Higher credit score: The credit score you need just to get approved for a loan has gone up. It is more difficult to get a bad credit loan, especially for a house. If you want approval, you need to work to improve your credit score. A higher score will also mean a lower interest rate.
• Income documentation: While it may not be terribly necessary for an auto purchase right now, income documentation is being emphasized more for a home mortgage loan. If you want to buy a house, the days of using unverified income are over. (At least for now. There’s a good chance that in 15 years or so things will be good enough that this whole messy cycle will repeat itself.)

This means that you need to prepare better if you are planning to make a large purchase on credit. Do what you can to improve your credit score, and save up money for a down payment. Those who are prepared are likely to still find credit at good rates. But the unprepared will either be rejected outright or will have to pay a premium to get approval.