How to Save Your Retirement

With the risk to your destination No. 1 grows, you can ask what they do now. Walter Updegrave, retirement expert, takes your questions.

Without doubt, recent months have space as the most tumultuous - and scariest - times that I've seen in more than 20 years I am at Money magazine. We have seen that the events up to now there have been almost unthinkable: the stock market fluctuating wildly and governments around the globe, the extraordinary measures to unlock the frozen credit markets. And it is still unclear if the economy and the markets will hit bottom.

Given the unprecedented degree of anxiety and uncertainty, it is no wonder that the readers of my Long View column in Money and my Ask the Expert column on CNNMoney.com have flooded me with retirement planning issues. These five general cover your biggest worry.

I should be less money in my 401 (k)?

Question: I am a contribution of 15% of my salary to my 401 (k). With the crisis, which is a tribute to the stock market, it would be a good idea to reduce my contribution to 10% and the additional 5% somewhere else? - Verona, Savannah, Ga.

A. I can understand why you tried to scale back. But reducing your 401 (k) contributions now would be a mistake.

To start with, you will have the task of lucrative tax benefits. You do not pay income tax on your 401 (k) contributions, or on your investment gains until you withdrawals. Plus, if your company fits what you save, you'll be away for free money. With a match from 50 ¢ to the dollar, you will have the task of an immediate 50% return on your contribution. This is a great time to everyone, but especially today. (For more information about how 401 (k) s work, you will find in the Ultimate Guide to Retirement)

And honest. Ask yourself whether you end up saving the 5% you planning to divert. Without the comfort of a 401 (k) 's salary deductions, good intentions can save too often succumb to the temptation to spend. By waiving tax exemption, the game and the automatic savings, you will almost certainly end with a smaller nest egg when you retire.

This is an important point. The debt ratio, that the government takes to deal with the current crisis will strain the federal budget in the coming years, raising the possibility of reductions in programs like Social Security and Medicare. Your retirement security depends more than ever on how successful you are in managing your 401 (k). This is not the time to back - with one possible exception.

With the swelling ranks of the unemployed, it is especially crucial that an emergency cushion three to six months living in a high-Hidden Stash safe as a bank account or a money-market funds. If you do not have a reserve, with the construction of a pronto. In the ideal case, you'd do this by tightening spending. But if it is not possible, you may need funds to save less in your 401 (k). I can not stress enough, however, that such a step should be for a limited duration. Once your emergency fund, bump your 401 (k) contributions, where they were before, if not higher, to lost ground.

Is my pension safe?

Question: Is the crisis impact on my defined benefit pension plan? I am 55 and was always willing to sign it. - Lynn, Hephzibah, Ga.

A. The fact that the stock market is reeling does not mean that your employer can slash your pension or take it away from you. With a traditional defined-benefit pension, the size of your check is based on the number of years you worked and your salary. Once you have vested, your employer must give you the retirement you deserve.

Europe markets down ahead of expected US sell-off

Europe's markets before the U.S. Open; Russian markets exposed to excessive losses

LONDON (Reuters) - European stocks traded sharply lower Tuesday before the expected losses on Wall Street despite concerns about the global economy following Down Beat corporate news in the U.S., Asian markets closed sharply lower.

The FTSE 100 index of leading British shares was 124.42 points, or 2.8 percent to 4279.50, while Germany's DAX was 151.85 points, or 3.0 percent lower at 4873.68. France's CAC-40 index was up 111.73 points or 3.2 percent lower at 3394.02.

U.S. stock futures to a lower start on Wall Street, the following Monday 74 point decline. Dow Jones Industrial futures shed 187 points or 2.1 percent to 8,700, while Standard & Poor's 500 futures fell 17.20, or 1.9 percent at 910.00.

The newest jitter have been stoked by a run of disappointing corporate news in the U.S. Earlier, home builder Toll Brothers Inc. said it could not project a profit for 2009 and Starbucks Corp. reported earnings that missed Wall Street expectations.

With the government and bond markets closed for Veterans Day, no economic reports are scheduled. Instead, investors will examine the reports earnings for direction during the session. And Toll Brothers and Starbucks reports noted the still existing problems in two of the market to the largest areas of concern: housing and consumption.

Their problems come in the wake of the announcement on Monday by electronics retailer Circuit City Stores Inc. that it has application for insolvency protection.

Investors are also speculations about the fate of the car manufacturer General Motors Corp., Chrysler and Ford Motor Co. after the automobile manufacturers met with legislators last week in the hope of securing financial aid. Shares of GM, which announced a 2.5 billion U.S. dollars in the third quarter loss on Friday and warned that it could cash in the next year, plunged 23 percent Monday to levels not seen since shortly after the Second World War.

The run of bad news from the U.S. so far this week has more than offset any relief on Monday the announcement by China that it is to boost its economy with a near 600 billion U.S. dollars package between now and the end of 2010 .

"Investors' enthusiasm quickly faded after corporate news, a reminder that the U.S. economy is in a state worse," said Stephen Lewis, an analyst at Monument Securities.

Concerns about the global economy are having their toll on oil prices as traders price in lower demand. By early afternoon London time, the cost of a barrel of oil was $ 2.64 cents to 59.77 U.S. dollars, to further selling of heavyweights BP PLC and Royal Dutch Shell, increased by 3 percent and 2 percent.

In Europe, financial stocks were particularly strong with Swiss bank UBS AG increased by 6 percent and Deutsche Bank 3.6 percent lower, and the alliance just 4.5 percent down.

Russian equities have a big blows Tuesday, forcing regulators to trade for one hour for excessive losses. The MICEX was 8.3 percent to 680.1 points by 12:30 clock (0930 GMT).

Earlier, Tokyo Nikkei 225 index fell 272.13 points or 3 percent to 8809.30, while the benchmark Hang Seng in Hong Kong lost 703.73 points or 4.8 percent to 14040.90.

Elsewhere in Asia, China's Shanghai Composite Index fell 1.7 percent to 1843.61, while Australia tumbled index 3.6 percent and the Indian SENSEX fell 5 percent. Markets in Singapore, Taiwan and South Korea were also hit with heavy selling.

The losses in Asia are in stark contrast to Monday, when trading was rejuvenated by China's 4 trillion yuan (586 billion U.S. dollars) stimulus package. Other countries, including the United States and Great Britain

These Are Good Times for Hard-Money Lenders -- Jack M. Guttentag

Like all disasters, the financial crisis has its share of beneficiaries who profit from it. The hard-money lenders, which lend strictly on the basis of collateral, have benefited from the financial meltdown. These non-institutional lenders require much less paperwork than institutions, because they do not have to worry about whether or not borrowers can afford the payments, or whether they are creditworthy. They do not bother with income, employment, credit or reports.

If the debtor can not pay, the hard-money lenders get their money back through foreclosure. They are typically 30 percent to 35 percent down, to ensure that enough capital to cover expenses foreclosure. Interest rates are much higher than those of institutions, and the conditions are short.

The earliest of the 19 mortgage banks Century focused entirely on safety. By necessity, they were hard-money lenders. There was no way to document any income in those days, and credit-reporting has not yet emerged.

Financings over the decades

Over the decades, credit underwriting came increasingly to stress the capacity of borrowers to repay their mortgages, especially as their incomes relative to their costs and their willingness to repay their credit as of record. Rules, as both the ability and willingness to pay had to be documented came to fill many pages of underwriting manuals. As collateral were less important, deposit requirements declined, and in many cases completely disappeared.

Hard-money loans today is a throwback to the days before the ability and willingness of mortgage borrowers to repay were important parts of the loan underwriting.

The financial crisis has been good for hard-money lenders because they have loans with less than full documentation of income and assets extremely difficult to obtain from institutional lenders. Here is a recent example from a letter I received:

"I have my residence for 300,000 U.S. dollars in 2005, to pay all cash, but now I need 80,000 U.S. dollars to repair and can not find a loan. I live from the income from other properties, myself, but I show very little On my income tax returns, because most of it is shielded from depreciation and interest costs. None of the lenders I have to be give me a loan. "

Before the crisis, these borrowers would have no difficulty in finding a "stated income" loans, which means that, if the borrower said, but his income was not required to be documented. Indeed, the stated-income loans was developed to meet the needs of precisely this type of borrower. The interest rate would have only 25 percent to .5 percent higher than the rate for a loan fully documented.

But as underwriting rules relaxed during the go-go years from 2000 to 2006, stated income loans came to be called liars' loans, because they so often used to create the conditions for mortgage borrowers, they could not afford. The presumption was that rising prices at home they can to refinance to a lower rate or later, if necessary, to sell the house at a profit. Instead of the actual revenues that are not documented, said income often reflects income that does not exist.

Since the financial crisis and Foreclosures mounted hostility against liars' loans grew. The term has hold between regulators, legislators, and even many credit providers that any mortgage borrowers should be required to document their ability to back number

Meet the one stock-fund manager

SAN FRANCISCO (Germany) - For a brief, shining moment last week, Tom Forester ran the only stock funds with a positive return for the year.

It is best not to judge fund managers to short-term outcomes, but shocking in this market climate, who can even approach break is probably worth a closer look.

Forester eponymous Forester Value Fund (NASDAQ: FVALX - News) lost 2.9% this year from 6 November, according to fund tracker Lipper Inc. In comparison with the average large-cap value rivals slumped 38.1%.

"It was one of those years where you just do not buy and hold," said Forester. "You have to be opportunistic."

Forester Perhaps the best opportunity this year came because of what he did not even financial stocks. He bypassed the big mines in this difficult sector, while investment in defensive consumer staples and pharmaceutical shares in support of the portfolio.

Lately, however, the fund manager, according to the U.S. market has been improved. Consequently, he is a danger in the company, the other perhaps still cautious, but if he sees greater potential for appreciation.

"I have to buy the things that get click on most," he said. "I am now switching into equities, a little risky, but more on the head as a result."

In addition, Forester said that his company evaluation criteria, which hinges largely on a stock price-to-earnings, price-book value and dividend yield.

"I'm basically a low P / E buyer," he said. "Low-valuation stocks usually get the best performance over a full market cycle. After they beaten until they do not go so far, and if the market rises they usually upwards more."

Valero Energy
Oil refiner Valero Energy Corp. (NYSE: VLO - News) is a typical example. Forester watched the shares fall, a victim of the rapidly falling oil prices and consumer demand.

But the fund managers saw a camp that he believed was oversold, and he began building a position in the mid-teens. Shares of Valero closed Friday at 19.24 U.S. dollars, up 3.9%.

"This path has been exaggerated," he said. "They buy the oil, refine it and sell the refined product. Anyone who makes a stable propagation is a much safer pick."

Daimler
A car manufacturer shares might not seem much to offer for a future today, but considers Forester Daimler AG (NYSE: SGI - News) an exception.

Shares of German firm were destroyed together with its partners in Detroit and Tokyo, but Forester said he is confident that upscale Mercedes-Benz driver will not abandon their vehicles, even in a slowing economy.

"Mercedes' clientele is not so economically sensitive," he said.

But why, with the market full of bargains, it would Forester is a car company?

"I was looking for something that was incredibly beaten, but still relatively stable revenues and is a strong company," he said.

A dividend yield approaching 10% are not violated. "Even if it was dead money for awhile, the yield pays you to wait," said Forester.

Shares of Daimler bottomed at $ 24 in late October from a peak of about 109 U.S. dollars a year ago; Forester was a buyer at 26 dollars. On Friday, the stock closed up 6.7% to 32.91 U.S. dollars.

Symantec
Software giant Symantec Corp. (NasdaqGS: SYMC - News) is another of the Forester's favorites.

Symantec sells the Norton brand and other computer security products, the company will purchase "in good times or bad," said Forester. "It's mission-critical stuff. You're not going to let your Internet firewalls and security."

Forester began in Symantec to buy over 12 dollars

Banks Mine Data and Pitch to Troubled Borrowers

Three years ago, she became ill with cancer and ran up $50,000 on her credit cards after she was forced to leave her accounting job. She filed for bankruptcy protection last year.

For months after she emerged from insolvency last fall, 6 to 10 new credit card and auto loan offers arrived every week that specifically mentioned her bankruptcy and, despite her poor credit history, dangled a range of seemingly too-good-to-be-true financing options.

"Good news! You are approved for both Visa and MasterCard -- that's right, 2 platinum credit cards!" read one buoyant letter sent this spring to Ms. Jerez, offering a $10,000 credit limit if only she returned a $35 processing fee with her application.

"It's like I've got some big tag: target this person so you can get them back into debt," said Ms. Jerez, of Jersey City, who still gets offers, even as it has become clear that loans to troubled borrowers have become a chief cause of the financial crisis. One letter that arrived last month, from First Premier Bank, promoted a platinum MasterCard for people with "less-than-perfect credit."

Singling out even struggling American consumers like Ms. Jerez is one of the overlooked causes of the debt boom and the resulting crisis, which threatens to choke the global economy.

Using techniques that grew more sophisticated over the last decade, businesses comb through an array of sources, including bank and court records, to create detailed profiles of the financial lives of more than 100 million Americans.

They then sell that information as marketing leads to banks, credit card issuers and mortgage brokers, who fiercely compete to find untapped customers -- even those who would normally have trouble qualifying for the credit they were being pitched.

These tailor-made offers land in mailboxes, or are sold over the phone by telemarketers, just ahead of the next big financial step in consumers' lives, creating the appearance of almost irresistible serendipity.

These leads, which typically cost a few cents for each household profile, are often called "trigger lists" in the industry. One company, First American, sells a list of consumers to lenders called a "farming kit."

This marketplace for personal data has been a crucial factor in powering the unrivaled lending machine in the United States. European countries, by contrast, have far stricter laws limiting the sale of personal information. Those countries also have far lower per-capita debt levels.

The companies that sell and use such data say they are simply providing a service to people who are likely to need it. But privacy advocates say that buying data dossiers on consumers gives banks an unfair advantage.

"They get people who they know are in trouble, they know are desperate, and they aggressively market a product to them which is not in their best interest," said Jim Campen, executive director of the Americans for Fairness in Lending, an advocacy group that fights abusive credit and lending practices. "It's the wrong product at the wrong time."

Compiling Histories

To knowledgeable consumers, the offers can seem eerily personalized and aimed at pushing them into poor financial decisions.

Like many Americans, Brandon Laroque, a homeowner from Raleigh, N.C., gets many unsolicited letters asking him to refinance from the favorable fixed rate on his home to a riskier variable rate and to take on new, high-rate credit cards.

The offers contain personal details, like the outstanding balance on his mortgage, which lenders can easily obtain from the credit bureaus like Equifax, Experian and TransUnion.

"It almost seems like they are trying to get you into trouble," he says.

The American information economy has been evolving for decades. Equifax, for example, has been compiling financial histories of consumers for more than a century. Since 1970, use of that data has been regulated by the Federal Trade Commission under the Fair Credit Reporting Act. But Equifax and its rivals started offering new sets of unregulated demographic data over the last decade -- not just names, addresses and Social Security numbers of people, but also their marital status, recent births in their family, education history, even the kind of car they own, their television cable service and the magazines they read.

During the housing boom, "The mortgage industry was coming up with very creative lending products and then they were leaning heavily on us to find prospects to make the offers to," said Steve Ely, president of North America Personal Solutions at Equifax.

The data agencies start by categorizing consumers into groups. Equifax, for example, says that 115 million Americans are listed in its "Niches 2.0" database. Its "Oodles of Offspring" grouping contains heads of household who make an average of $36,000 a year, are high school graduates and have children, blue-collar jobs and a low home value. People in the "Midlife Munchkins" group make $71,000 a year, have children or grandchildren, white-collar jobs and a high level of education.

Profiling Methods

Other data vendors offer similar categories of names, which are bought by companies like credit card issuers that want to sell to that demographic group.

In addition to selling these buckets of names, data compilers and banks also employ a variety of methods to estimate the likelihood that people will need new debt, even before they know it themselves.

One technique is called "predictive modeling." Financial institutions and their consultants might look at who is responding favorably to an existing mailing campaign -- one that asks people to refinance their homes, for example -- and who has simply thrown the letter in the trash.

The attributes of the people who bite on the offer, like their credit card debt, cash savings and home value, are then plugged into statistical models. Those models then are used for the next round of offers, sent to people with similar financial lives.

The brochure for one Equifax data product, called TargetPoint Predictive Triggers, advertises "advanced profiling techniques" to identify people who show a "statistical propensity to acquire new credit" within 90 days.

An Equifax spokesman said the exact formula was part of the company's "secret sauce."

Data brokers also sell another controversial product called "mortgage triggers." When consumers apply for home loans, banks check their credit history with one of the three credit bureaus.

In 2005, Experian, and then rivals Equifax and TransUnion, started selling lists of these consumers to other banks and brokers, whose loan officers would then contact the customer and compete for the loan.

At Visions Marketing Services, a company in Lancaster, Pa., that conducts telemarketing campaigns for banks, mortgage trigger leads were marketing gold during the housing boom.

"We called people who were astounded," said Alan E. Geller, chief executive of the firm. "They said, 'I can't believe you just called me. How did you know we were just getting ready to do that?' "

"We were just sitting back laughing," he said. In the midst of the high-flying housing market, mortgage triggers became more than a nuisance or potential invasion of privacy. They allowed aggressive brokers to aim at needy, overwhelmed consumers with offers that often turned out to be too good to be true. When Mercurion Suladdin, a county librarian in Sandy, Utah, filled out an application with Ameriquest to refinance her home, she quickly got a call from a salesman at Beneficial, a division of HSBC bank where she had taken out a previous loan.

The salesman said he desperately wanted to keep her business. To get the deal, he drove to her house from nearby Salt Lake City and offered her a free Ford Taurus at signing.

What she thought was a fixed-interest rate mortgage soon adjusted upward, and Ms. Suladdin fell behind on her payments and came close to foreclosure before Utah's attorney general and the activist group Acorn interceded on behalf of her and other homeowners in the state.

"I was being bombarded by so many offers that, after a while, it just got more and more confusing," she says of her ill-fated decision not to carefully read the fine print on her loan documents.

Data brokers and lenders defend mortgage triggers and compare them to offering a second medical opinion.

"This is an opportunity for consumers to receive options and to understand what's available," said Ben Waldshan, chief executive of Data Warehouse, a direct marketing company in Boca Raton, Fla.

Among its other services, according to its Web site, Data Warehouse charges banks $499 for 2,500 names of subprime borrowers who have fallen into debt and need to refinance.

Representatives of these data firms argue that their products merely help lenders more carefully pair people with the proper loans, at their moment of greatest need. The onus is on the banks, they say, to use that information responsibly.

"The whole reason companies like Experian and other information providers exist is not only to expand the opportunity to sell to consumers but to mitigate the risk associated with lending to consumers," said Peg Smith, executive vice president and chief privacy officer at Experian. "It is up to the bank to keep the right balance."

Decrease in Mailings

In today's tight credit world, the number of these kinds of credit offers is falling rapidly. Banks mailed about 1.8 billion offers for secured and unsecured loans during the first six months of this year, down 33 percent from the same period in 2006, according to Mintel Comperemedia, a tracking firm.

Countrywide Financial, one of the most aggressive companies in the selling of subprime loans during the housing boom, says it sent out between six million and eight million pieces of targeted mail a month between 2004 and 2006. That is in addition to tens of thousands of telemarketing phone calls urging consumers to either refinance their homes or take out new loans.

Even with the drop-off over the last year in such mailings, lenders continue to be eager customers for refined data on consumers, say people at banks and data companies. The information on consumers has become so specific that banks now use it not just to determine whom to aim at and when, but what specifically to say in each offer.

For example, unsolicited letters from banks now often state what each person's individual savings might be if a new home loan or new credit card replaced their existing loan or card.

Peter Harvey, chief executive of Intellidyn, a consulting company based in Hingham, Mass., that helps banks with their targeted marketing, says the industry's newest challenge is to personalize each offer without appearing too invasive.

He describes one marketing campaign several years ago that crossed the line: a bank purchased satellite imagery of a particular neighborhood and on each envelope that contained a personalized credit offer, highlighted that recipient's home on the image.

The campaign flopped. "It was just too eerie," Mr. Harvey said.

The Holdup at Online Banks

At a time of uncertainty in nearly every market, I'm a big fan of online savings accounts, many of which are paying 3% to 4% interest right now. But they have a frustrating quirk: Transferring money between a savings account at one bank and a checking account at another easily takes two days -- and sometimes as many as four.

This delay has become more apparent and more irritating during the continuing financial crisis, as consumers seek two basics: safety and yield. (Yields on these savings accounts have tended to be higher than those on money-market accounts.)

Online accounts, like all bank accounts, are protected by the Federal Deposit Insurance Corp. up to $250,000 per account holder. Offerings from HSBC Holdings PLC's HSBC Direct, Emigrant Bank's EmigrantDirect and First National of Nebraska Inc.'s FNBO Direct typically have low minimum-balance requirements. They can be good places for holding your cash reserves or earning interest on money set aside for tax payments or tuition, especially since interest-bearing checking accounts and traditional bank savings accounts typically pay well below 1% interest.

But in a remarkably interconnected, instantaneous world, where a debit-card purchase shows up in our bank accounts right away, it's equally remarkable that online transfers can be so slow.

Here's the hitch: Funds transferred between two different banks or a bank and a brokerage firm aren't really sent "online" in the way we have come to expect. Instead, these large transfers move in steps. Banks have slowed down the process further to reduce the chance of fraud, even though such fraud is fairly rare. (Years ago, Congress forced banks to speed up the clearing of checks and the availability of deposits, but it hasn't addressed electronic payments.)

You may have seen this when you tried to move money to or from a brokerage account. I ran into it most recently when I went to my ING Direct savings account first thing on a Monday morning to transfer money for a new car to my Bank of America checking account. While it showed up as "pending" on Wednesday, it wasn't mine to spend until Thursday.

What happens during that time? ING sends transactions in batches during the day to an automated clearinghouse, which sorts them and moves them to the receiving bank in a matter of two to four hours, according to Arkadi Kuhlmann, chief executive officer of ING Direct USA, a unit of ING Groep NV, and Elliott C. McEntee, chief executive of Nacha, the Electronic Payments Association, a not-for-profit group that oversees the automated clearinghouses.

In many cases, the receiving bank gets the transfer the same day. Under rules established by Nacha, money that moves on Monday should be available by the end of Tuesday. If the transfer slips to early Tuesday morning, the money should be available first thing Wednesday morning.

But the money isn't always available that quickly. Bank of America Corp. says such transfers typically take two to three days. EmigrantDirect says on its Web site that transfers take two to four days, while HSBC Direct says customers should expect transfers to take up to three days. The industry calls this a "three-day good funds model," says David Goeden, an HSBC executive vice president in personal financial services. That is, the bank wants to make sure our funds are good before it lets us have them.

The slowdown for deposits is even worse. I sign in to ING Direct to transfer funds for free to and from my Bank of America checking account. That's because Bank of America charges me $3 to transfer to another bank, which it says is typical in the industry. Because ING doesn't know if the transfer is good until the money is there, it holds deposits for five business days -- a whole week in civilian time -- before making them available, though they will start to earn interest sooner.

The banks say they want to avoid fraud, such as transfers from bad accounts, or when someone else gets hold of your online sign-on name and password and tries to move your money somewhere else. According to numbers compiled by the American Bankers Association, about $969 million was lost to fraud in 2006, the most recent year available, out of about $41.7 trillion in checking-related transactions, a number kept very low in part because of aggressive risk-management practices. But even when attempted fraud is factored in, more than 99.9% of checking transactions are good.

Here's what you can do if you want to transfer money between institutions:

• Plan ahead and send transfers early in the day to have a better chance of a faster transaction.
• Ironically, you can move your money faster with an old-fashioned paper check. See if your money-market account offers check-writing privileges, or open a small checking account at the same bank as your online account. Transfers within the same bank usually happen the same day.
• If the transactions take longer than two business days, complain to the bank where the transfer originated. Nacha doesn't regulate how long a bank can hold onto a deposit "pulled" from another bank to be sure the funds are there. But it does have rules, and can assess fines, if funds "pushed" from another bank aren't credited quickly.
• Hang on. Europe already has a much faster system, and systems to speed up the process here are under development, though they won't be ready for at least a couple of years.

Credit Deals for the Creditworthy

These days, borrowers with solid credit scores can find attractively competitive terms. But move quickly: Yardsticks of creditworthiness are changing.

The credit crisis has given Scott Briggs and his wife, Catherine, unusual leverage in their search for a new home. In October, to get the best deal on a 30-year fixed mortgage for a home in Austin, Tex., the couple persuaded the seller to agree to an unusual contingency clause in the contract of sale that let them back out, without penalty, if they couldn't get a mortgage carrying a 5.875% interest rate and no more than one point in closing fees.

The couple -- he is a partner at Ascend, a jet hangar manufacturer, and she is a pharmaceutical sales rep -- have near-perfect credit scores. Adding to their bargaining power, they plan to put 20% down on the four-bedroom, two-bath home in downtown Austin that they covet. They're also pitting two lenders against each other. "With rates bouncing around, we want to get the lowest rate possible," Scott says. Keith T. Gumbinger, vice-president of HSH, a mortgage market analyst, says that's smart: "There are a lot of hungry mortgage originators, so great credit-quality borrowers are in the driver's seat."

Though the lending spigot has slowed to a trickle for consumers with dicey finances, those with stellar credit, ready cash, and a little creativity can use the turmoil to their advantage. The yardsticks of creditworthiness are changing. Two years ago borrowers with a score of 650 out of 850 qualified for the most competitive interest rates. Today, they need at least 750 for the best deals. Also, experts once advised consumers to keep their credit-card balances below 35% of their credit line to maintain a high credit score; now 20% is the maximum allowed for a top score.

Cash Cushion

Recessions tend to make consumers want to shore up personal balance sheets. One strategy for stockpiling cash is to tap a home equity line of credit (HELOC). Sure, falling housing prices mean fewer of these credit lines are being given, and many borrowers are seeing their home equity credit lines cut back or eliminated. But those who can still tap their HELOC can use it to build up cash and, in rare cases, make a little money. If your HELOC rate is 5% or lower, consider drawing down that cash and buying a one-year certificate of deposit that's yielding north of 4%, says John Ulzheimer, president of consumer education at Credit.com. You'll also get a tax deduction, which can help make up for the difference. "If HELOC rates go up, pay down the money and you are off the hook," he adds. The main point is to gain access to cash, with the arbitrage a side benefit.

With the housing market weak, consumers may want to pad their cash cushion before the financing window closes. Scott Gale of Irvine, Calif., drew $480,000 out of his HELOC in July, just in case he needs extra money for his residential development business. Gale, who has a top credit score and no credit-card debt, split the money between CDs and high-yield bonds. "I'm not planning to touch the money for at least 18 months, but it is good to know it is available for my business," Gale says. (He hopes the high-yield markets will stabilize by the time he needs the money and deliver a nice return on his investment.) A month after Gale tapped his HELOC, he got a letter from his lender saying that the remaining credit line was shuttered due to market conditions.

With auto sales stagnant, car buyers can also find bargains. Frank Luppino, who owns a specialty lighting company in suburban Chicago, purchased a 2008 Chevrolet Avalanche in October for $14,500 off the list price. His high credit score of 801 out of 850 allowed him to get the rate on the dealer-financed loan cut from 5.5% to 4.9% just by asking for the best possible offer. "It was done in less than 10 minutes," he says.