[Gerri Willis, Cnn:] Hello, I'm Gerri Willis and this is OPEN HOUSE, the show that saves you money. Coming up, whether we are in a recession or just heading into one, job loss is a real concern. We'll show you how to bounce back after getting the pink slip. Then, ways to save from your mortgage to your morning coffee. But first, foreclosures hit another record high in the fourth quarter, that's according to the Mortgage Bankers Association, and some cities across the country have been hit particularly hard. Cleveland is one of those cities, ranking sixth in the nation for foreclosure filings. Folks there with worried that their community may be permanently damaged.
[Willis:] Marie Kittredge's middle class community in Cleveland has been decimated by the foreclosure crisis.
[Marie Kittredge, Exec. Dir. Slavic Village Dvmt:] Really, we have been robbed because we had these these houses were all occupied five years ago. They were cheap affordable housing.
[Willis:] About 1,000 homes in her Slavic Village neighborhood are empty, made loose by looters ripping apart their interiors stealing valuable metal pipes and wires. Cleveland was already suffering economically, community leaders blame the housing crisis on Wall Street and mortgage fraudsters.
[Tony Brancatelli, Cleveland City Councilman:] We weren't the victim of a natural disaster, we're a victim of a man-made disaster.
[Willis:] Now local leaders want to turn disaster into opportunity, demolishing homes that are too far gone and rehabbing the ones that can be saved. The money is coming out of an already overburdened city budget.
[Mayor Frank Jackson, Cleveland:] Last year we had $6 million and we tore down close to 1,000 structures as a result of that. But Cleveland is losing valuable tax dollars because of lower home values and vacant properties and is looking to the federal government for help.
[Brancatelli:] We need the same kind of disaster relief that other cities have had to come in and help clear out the abandoned property and to help come reinvest and help save our neighborhoods.
[Willis:] The federal government has promised 130 million for counseling those facing foreclosure, part of which will go to Cleveland. The Bush administration and six major lenders have also agreed to give homeowners facing foreclosure an extra 30 days to try and rework their mortgage. Marie Kittredge hopes for more government help, but knows the real work will come at the community level.
[Kittredge:] I'm kind of over the anger and the grief and we are completely about figuring out a way to solve the problem. This is home to me, I wouldn't trade it for anything.
[Willis:] As the housing market struggles, home prices are following and well, that means opportunity for some people. But lending standards have tightened and it's more important than ever to have good credit. So, how do you make yours financially attractive to lenders? Well, here with answers, John Ulzheimer from credit.com, and he is the author of "You're Nothing but a Number." I love that title, it's great. So tell me, though, this is a big question, I think what is the magic number these days, what is the number that lenders are looking for in credit scores?
[John Ulzheimer, Credit.com:] If you can't boast credit scores of 720 to 750 across the board, you're still going to get the best deals that lenders have to offer. The credit crunch is you're essentially immune from the credit crunch at that point.
[Willis:] What else are the lenders looking for?
[Ulzheimer:] Well, they're looking for more documentation of income. They're looking for proof of employment. The days of the no doc loans are gone.
[Willis:] No ninja loans, that's done, right?
[Ulzheimer:] That's right, they are long since gone. So you better be able to prove things such as your income and you're employment.
[Willis:] Let's talk about getting the finances in order to buy. What do you do, what do you get together?
[Ulzheimer:] I'm thinking three to six months in advance you start attacking the credit card debt as much as possible. Draw a line in the sand and say absolutely no more until I close on any mortgage loan. That will help your credit score and it'll also help your debt to income ratios which lenders are also looking for much better percentages.
[Willis:] OK, so if I'm worried, three to six months ahead of time, before I even start applying the credit, I need to be managing the credit score?
[Ulzheimer:] Absolutely.
[Willis:] Now, here's a big question, though a lot of people are asking me, they're saying, you know, hey, the value of our house is now less than what I owe. I want to walk away. That makes no sense for your credit score, right?
[Ulzheimer:] It makes absolutely no sense. It may be a quasi-good decision from a financial perspective. From a credit perspective walking away from your home, even a deed in lieu of foreclosure, which is essentially you giving the keys back to the lender, is just as bad for your credit score as a true foreclosure.
[Willis:] Really? It doesn't matter?
[Ulzheimer:] It doesn't matter. And a short sale is just as bad, as well, which is not good news considering how popular the short sale is today.
[Willis:] I just think breaking you know, saying that you're not going to pay that loan after you have signed and promised to do it is just bad news. OK, let's talk about the best way to boost your credit score. There's a lot of debate on this. Tell me two things to do right now to boost my credit score.
[Ulzheimer:] Two things to do to boost your credit score, right now, pay down your credit card balances as much as possible, contact your credit issuers and see if they'll give you a credit line increase.
[Willis:] Why?
[Ulzheimer:] It has the same effect as paying down your balances. You're utilization, or the differences between your balances and your limits has increased even though you haven't paid down anything more. Now, that's not a license to shop, though.
[Willis:] Wait, you sound like some people I know. OK, but don't go shopping. All right, what's the best way to maintain that score once you do get it in a good position?
[Ulzheimer:] That's a good question. The strategy to improve and the strategy to maintain, totally different. What you want to do once you have a good score is you want to find out what exactly did I do to get there. And most of the time it's making sure payments are made on time, keeping the credit card debt to about 10 percent of the credit limit and not using your credit report as a 10 percent off coupon at the mall in exchange for opening a new account just to save some money on your purchases.
[Willis:] The credit card and the way you use it is so important to your score, it's so much more important than so many other things. Let's talk about Web sites that people can go to. Let's send people to places on the Web where they can get help.
[Ulzheimer:] Sure. There's a few places. Annualcreditreport.com is where you can get your federally mandated free credit reports, credit.com, you can get your free credit report card. Certainly any of the credit reporting agencies Web sites, you can go there and get your individual credit reports, as well.
[Willis:] OK, great information there. You know, we always talk about how many of these credit reports have errors. How many of these have errors do you believe?
[Ulzheimer:] Well, the number is going to differ depending on where your information is coming from. I have been in this business since 1991 and what I have seen is that the majority of credit reports have some sort of error on them and some of those errors are egregious enough to where the lender would make a different decision than if the information was actually correct.
[Willis:] That's terrible.
[Ulzheimer:] That's why you need three to six months in advance so you have time to correct the errors.
[Willis:] That's just crazy. Well, John, great information, great advice as always, we really appreciate your being here.
[Ulzheimer:] Thank you.
[Willis:] Coming up on OPEN HOUSE, how to get back on your feet after loosing a job. Then, upgrading your home, how to do it yourself the right way and save a ton of money. And ways to save from your mortgage to your groceries, we'll show you how.