Tuesday, December 30, 2008

Brother, can you spare a dime?

I'm still trying to figure out who will be helped by GMAC's decision to make potentially shakier car loans with federal bailout money.

Not me, obviously. As a job hunter, I don't think I even qualify for one of those late night TV loans that offer to finance anyone with a $250 weekly income and a pulse. But my inability to blow my unemployment check on a Hummer never seemed a tragically missed opportunity, either.

GMAC's decision to expand lending to anyone with a 621 or higher credit score adds something fewer than 27 percent of the nation's potential borrowers to the roughly 48 percent who might have qualified when a minimum 700 score was required, the FICO gnomes at Fair Isaac Co. suggest.

Real life is trickier, according to some of the trends I've been watching. Various industry sources report that while fewer loan applications are approved -- about 64 percent currently compared to 83 percent a year ago -- applicants with lower scores get hit the hardest. Fewer than one in four applications are being accepted now from borrowers with scores below 620, compared to about two out of three last fall. That makes sense. No one wins when repos happen.

So how do you avoid a jam if you need a loan and unemployment is eroding your credit score?

Think preemptively.

An upcoming issue of Kiplinger's Personal Finance outlines some of the new lending changes to keep in mind. Lining up a home equity line of credit or some other line before you need it will help. But tap it only when you really, really need to, because without steady income, that money may be much harder to repay than you imagine.

Until then, talk with some lenders. Even in a tough economy, there are some who may be willing to take a chance if your repayment history is good, you can show you've got really good job prospects ahead, or if you have something to offer as collateral.

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