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Tougher Credit Days Ahead

I know the subprime-lending crisis came about from too many risky loans being made to too many risky borrowers. Even though I haven't taken out any subprime mortgages, I also know that the crisis is having a significant effect on millions of people, not to mention lots of financial companies, including big names Citigroup (NYSE: C  ) , Capital One (NYSE: COF  ) , Merrill Lynch (NYSE: MER  ) , Bear Stearns (NYSE: BSC  ) , and Lehman Brothers (NYSE: LEH  ) .

But I didn't fully realize how the crisis may have some meaningful ramifications for me -- and probably you. I gained a new perspective after reading a somewhat scary viewpoint on the recent subprime-lending crisis the other day, from Bill Hardekopf of

Here are some points to ponder:

  • It may get harder to borrow money from your bank, whether for a car loan, home-equity loan, mortgage, or any other reason. Banks are likely to be fussier than before. If you just don't cut it with regular banks that charge reasonable rates, you might end up looking at other lenders offering less reasonable rates.
  • This might actually be a good thing: Hardekopf suspects that even new credit cards will be harder for some people to get. Apparently, in the United Kingdom, "half of all shoppers seeking new credit cards are being turned down. Those who are receiving offers are paying higher rates and fees."
  • It's going to be more important than ever to keep your credit record clean and your credit score high. Happily ensconced in your home, with no plans to refinance your mortgage in the immediate future, you might think you're out of the woods. But no, these days, our credit scores get looked over by all kinds of lenders, as well as potential employers and landlords, among others. It's an important influence on your financial life. If your score drops, your credit card rates, for example, might get raised. Lower scores mean higher mortgage rates, too. According to a recent issue of Money magazine, a FICO score of 760 would qualify you for a mortgage at an interest rate that's 4% less than someone with a 560 score.

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