TLC Review

Why are lenders making it tougher to borrow.

In December, for example, EMC Mortgage Corp., a subsidiary of Bear Stearns Companies, as much as doubled the amount of cash savings that loan applicants need to qualify for a loan.
Then in February, the bank announced it would no longer offer so-called "piggyback" loans, which let consumers finance 100 percent of a home's price. Now, you must put down a minimum of 5 percent or 10 percent, depending on other factors in your loan application.
"After analyzing the current market conditions, we decided we needed to get to a lower loan to value ratio," says Mary Haggerty, co-head of Bear Stearns' mortgage finance department.

What can be done to improve your chance.
Pay Down Balances

Most lenders look at your FICO score when reviewing your loan application. FICO stands for Fair Isaac Corp., which calculates the rating, and the score ranges from 300 to 850.
According to Fair Isaac, the median FICO score is 723. Borrowers with a score of 700 or more generally are considered prime. Since 30 percent of your FICO rating is made up of how big your balances are compared to the credit available to you - what's called a credit utilization ratio - one of the fastest ways to improve your score is to pay down your debts, says Craig Watts, public affairs manager for Fair Isaac.
There's no magic percentage. However, credit experts recommend you stay below 50 percent. And the lower you go, the better your score will be.

Your payment history, or how often you pay your bills on time (or late), is equally important, making up another 30 percent of your FICO score. A late payment stays on your credit report for as long as seven years. Its impact on your score, however, gradually fades over time - as long as you get current on your bills.
Your score will gradually move up after as few as six months of on-time payments, according to Evan Hendricks, author of "Credit Scores and Credit Reports." And you'll see a more significant leap after one year. "At that point, your old late payments start to hurt less," says Hendricks.

New credit-card and store-card offers can be tempting, especially if you get 20 percent off your purchase at the check-out counter. But if you're about to refinance or take out a mortgage, don't open any new lines of credit. The number of times you apply for new credit, called inquiries, accounts for 10 percent of your FICO score. And the fewer you have of them, the better. Otherwise, "It could look like you're going on a credit spree," says Hendricks.

Finally, make sure to check your credit report for errors at least a few months in advance of applying for a mortgage. Errors are common. A 2004 study from the U.S. Public Interest Research Groups found that up to 79 percent of credit reports may contain a mistake, some serious enough to result in the denial of credit. You're also entitled to see a copy of the credit report your loan officer or mortgage broker pulls. If you find a discrepancy, credit bureaus provide instructions on the credit report on how to contest an error.