There is a really good article in this month's (July, 2008) Consumer Reports on rules for borrowing. Some of you may know these, some may not.
20% - Your car payment, credit cards and other non-mortgage debt should be less than 20% of your gross monthly income.
28% - Your monthly mortgage payment (including property taxes and insurance. Often referred to as escrow) should not exceed 28% of your gross monthly income.
36% - 48% - You total monthly debt payments should not exceed 36% of your gross monthly income. But never above 48%.
80% - The total amount borrowed on your first mortgage, plus any second mortgage or home-equity credit line should not be more than 80% of the property's value. The lower this debt-to-equity ratio, the better.
6 Months - You should have enough money to cover six months of living expenses in an accessible account for emergencies. Don't use credit lines as a substitute.
36 Months - Don't take out an auto loan that exceeds three years. Longer-termed loans can leave you upside down with a loan balance that is larger than the car's depreciated value.
650-700 points - You are generally considered a sub-prime borrower if your FICO credit score is below 600 for auto loans and mortgages and below 700 for premium credit cards and 650 for classic cards. If your credit score falls below those thresholds, you'll pay higher interest reates.
By the way, you are entitled to one free credit report from each of the big four credit companies. You'll have to purchase your credit score but the report is free. Studies suggest that as many as 80% of the credit reports have errors bad enough to deny you credit so it's important to check each of the reports at least once a year.
