Having good credit could help you save thousands - you'll avoid expensive fees and penalties and get better interest rates when you go to borrow. And did you know that your credit can even affect job and apartment applications? This is especially important in a tight economy. Read on to learn what you need to know about credit and improve your financial situation.

• What's in a credit rating? — Your credit score is a three-digit number that lenders use to evaluate your creditworthiness. Two things:
  • You want this number to be as high as possible - 720 and up is considered "good," and most mortgage lenders look for a score of at least 620. Below that, you'll find it harder and more expensive to acquire a good credit card or mortgage.
  • Your score is calculated from your payment history (35%), the amount of money you owe (30%), the length of your credit history (15%), recently opened credit accounts (10%) and whether your credit mix is considered healthy (10%).
• Get your report for free — It's now possible though the federally mandated site AnnualCreditReport.com. Every consumer is entitled to one free credit bureau each year from each of the three major bureaus - Experian, TransUnion and Equifax.
• So, how can I improve my score? — Here are four ways to have a big impact:
  • Pay your bills on time - a single missed payment can reduce your score by 100 points! Setting up recurring online bill payments can help.
  • Pay down your debts as quickly as financially possible and keep credit card balances low. Be prepared to stick with it - a credit card balance of just $5,000 dollars with an interest rate of 15% would take 11 months to pay off at $500 a month, and 79 months at $100 a month!
  • Dispute any serious credit report errors with the bureaus. Incorrect collections notices occur more frequently as the economy worsens. Note that most negative information clears over time, but late payments only clear after seven years and bankruptcies after 10 years.
  • Overall, try to trim your daily or monthly expenses and build a financial plan that includes saving. Eat at home more, skip the extra cable channels, etc. You know the drill. Make sure you put money into your savings account - lenders count your total savings into your score.

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Mortgages have certainly been in the news plenty of times in the past year. But you may be uncertain about some of the basics and what mortgage is best for you in today's economy. Here are some pointers to help you better navigate the turbulent times:

• Put your "house" in order first — Even before starting to look for the home of your dreams, you'll need to pay off as much debt as you can. Don't forget to build your savings at the same time. And clean up your credit report (see this month's Everyday Savings Tips for more). You'll look more creditworthy, and be able to borrow more.
• So, how much can you afford? — Get prequalified to borrow up to a certain amount — it will give you a realistic price range and an edge when negotiating with sellers.
  • A standard rule of thumb for conventional mortgages is that the monthly mortgage principal, interest, insurance and property taxes shouldn't exceed 28% of the buyer's gross monthly income.
  • In addition, your total monthly debt, including mortgage or rent, car loan, credit cards, etc., shouldn't exceed 36% of your gross monthly income.
  • Also, with the recent changes in the mortgage world, you may have to put 10-20% down on the home's total purchase price.
• Which type of mortgage is best for me? — Here are a few options:
  • An adjustable rate mortgage (ARM) is usually a good deal because the average American gets a new mortgage every 5 to 7 years, depending upon whether you are moving or refinancing the house you own. Usually you will pay a higher rate for a 30-year fixed mortgage then an adjustable rate mortgage and can save thousands during that time frame.
  • 30-year fixed-rate mortgages are still popular for buyers who'll be in the house at least seven years. The drawbacks are low principal payments in the early years, and the risk that rates will go down (although you may be able to refinance).
  • 15-year fixed-rate mortgages sport lower interest rates. You'll pay less in total interest and more in principal, but payments can be high.
  • A mortgage with a balloon payment requires you make a lump-sum payment to pay off the loan in full after a fixed period of time. Rates are lower than with a 30-year fixed, but can be better for those who plan to sell or refinance before the final payment is due.

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