With foreclosures and short sales driving down the price of both pre-owned homes and newly constructed homes - and with interest rates at historically low levels, a high credit score can be your newly paved path to the "American Dream."



4th quarter 2008 figures are coming in now - and while the news is sad for homeowners hoping to sell, it's good for those seeking to buy. The number of homes selling has gone up, while the prices continue to fall. We could see this trend continuing over the coming months, so even if your credit score needs some improvement, you should have time to work on it and qualify for the best rates.

The most recent news has 740 as the FICO score you need to buy a home, while a credit score of 760 will get you rates under 5%.

Rumors have it that FHA and other government programs may be reaching out to first time homebuyers with even lower rates and lower score requirements. But historically those homes have had to qualify under rigorous guidelines. Many of the repossessed homes probably won't fit the programs. So don't count on being able to purchase with credit scores at or below average - keep working to raise your credit scores.

Since a 1% difference in interest on a $100,000 mortgage amounts to over $60 per month difference in your payment (or $720+ per year), it's well worth your effort to reach for the highest scores and the lowest rates.

If you aspire to home ownership, the first step is to get your free credit report - with scores - and see how you stand. If your score is less than 760, begin taking steps to raise it.

Look first for errors - representatives of the Fair Isaac Corporation say that 25% of all credit reports have errors, and those could hurt your scores. If you find one, contact the credit bureau immediately and follow their instructions for having the error corrected.

Next, look for credit card accounts that may have changed - card issuers are lowering credit lines, so while you may have been within the recommended credit usage on each card a few months ago - you might now be exceeding 30% on some cards. That can hurt your scores. If possible, move some of your balances to a different card to keep usage on each under 30%. If you can do it, get each under 10% for the highest benefit.

Of course, the best course of action is to pay down your accounts as fast as possible. Right now might be the time to forego your weekly night out and use that money to pay down a credit card. The money you'll save on mortgage interest over the next few years will allow you to have two nights out later on!

Be sure to keep a close watch on your credit report, and see how your activities are affecting your scores. And as soon as you reach the "magic 760" start shopping for that home!