Your place in that world largely comes down to a single factor: your credit rating.

"There's never been a time in my professional life -- 17, 18 years -- where having strong credit mattered so much," says Bob Walters, chief economist at Quicken Loans. "People with bruised credit are going to get punished by the credit market."

Increasingly, people with bad credit are finding it difficult to access many types of borrowing tools, from credit cards to mortgages, Walters says. Even the lucky few who are granted credit despite poor FICO ratings are finding borrowing much more expensive.

"What your credit score is will determine how much you pay for credit," Walters says. "It has always been that way to some degree, but now it is absolutely the case. That's the big story in the mortgage world."

This new emphasis on stellar credit is likely to endure for a long time to come, according to Walters.

"I can't see that changing for a number of years, at the very least," Walters says.

Tightening credit
Richard DeKaser, chief economist for National City Corp., believes persistently tight credit conditions are a major factor in the Federal Reserve's decision to lower rates for the sixth time since last September.

"One of the biggest surprises over the last 30 days is that we've seen all kinds of indicators of credit tightness intensifying," DeKaser says. "For example, the spread on corporate bonds, risk-free Treasuries, banks' senior loan officers' surveys, so on and so forth, all have given credence to the argument that a credit crunch is in the making."

Walters says such constricted credit conditions hamper many lenders from freely doing business.

"Credit has seized up in the many parts of the market and as more and more banks have to address losses, it just strains their capital," Walters says.

A Fed cut helps these banks because "money courses through the banking system -- it doesn't give them capital, but it certainly gives them the ability to lend more readily," Walters says.

Perhaps more importantly, the Fed's actions help restore trust in the markets, Walters says.

"At its most base level, credit markets operate on trust," Walters says. "Right now, that trust is lacking. So, somebody's got to come in and stand strong, and right now that's the federal government."

Although the Federal Reserve's latest rate may help the economy in the short term, it won't come without a price, Walters says.

"The Federal Reserve knows that pumping money into the economy will only increase the price of commodities and decrease the value of the dollar, which will also be inflationary," he says. "On the other hand, they know they have an economy where home prices are falling and consumer spending is going to be affected significantly.

"I think they are making the best of two bad choices."

Homeowner and homebuyer strategies
Although the Federal Reserve's latest cut is designed to boost the overall economy, DeKaser believes the central bank is "primarily focused on helping the housing market" at this point.

By lowering interest rates, the Fed hopes to ease the financial strain of mortgage resets, which are scheduled to affect millions of homeowners with subprime adjustable-rate mortgages. A lower federal funds rate should translate into reduced monthly payments for these homeowners.

"The Fed's actions are pretty much directly reducing the magnitude of the resets," DeKaser says. 

While the Fed is providing breathing room for subprime borrowers, these homeowners can further help themselves by refinancing to a better mortgage. Lenders are extremely reluctant to make loans to people with subpar credit, so it won't be easy. But that doesn't mean it's impossible, Walters says.

"If you are in a subprime loan, see if you can get an FHA (Federal Housing Administration) loan," Walters says. "If you can't, you can't. But it's worth trying. It's very, very critical that people build that line of defense in their mortgage."

Mortgage shoppers also should keep an eye on adjustable-rate mortgages. Until recently, ARM rates were falling, making them an attractive option for people who planned to be in their homes for a short time.

However, rates on products such as the 5/1 ARM lately have surged. Meanwhile, economic fear -- particularly regarding fears about the U.S. housing market -- is keeping consumers from taking a chance on shorter-term lending instruments such as ARMs.

Jim Sahnger, a mortgage broker with Palm Beach Financial Network in Stuart, Fla., says "there just hasn't been much interest at all in ARMs" over the past few weeks.

"In an environment like this, with as much negative press as ARMs have gotten, you don't typically have a lot of customers today that are looking to get out of whatever product they're in and go into another ARM -- even though in some cases it may make a heck of a lot of sense," he says. 

Both Sahnger and Walters believe ARM rates eventually will come down once pricing stability returns to the housing market. For now, there are few signs as to when that will occur.

Until ARM rates descend, it makes more sense to stick with a fixed-rate mortgage. Other homeowners may find that a fixed-rate product almost always makes sense, regardless of the status of ARM rates.

"If a rate or payment change would be a hardship for you, then I think a 30-year fixed makes all the sense in the world," Walters says.

People who are risk-averse and who plan to stay in their home for a long period of time also should stick with a fixed-rate mortgage, he says.

The Federal Reserve's rate cut does not necessarily mean fixed-rate mortgages will fall. In fact, rates have surged since the Federal Reserve trimmed 125 basis points from the federal funds rate in January.

Still, rates remain relatively low by historical standards, making now a good time to refinance for many people, Walters says. That's true even if rates fall further in the future.

"If interest rates rise in the future, then you made a great decision," he says. "If interest rates fall in the future, then you refinance again. You're out your closing costs, and that's it."

Walters acknowledges that "nobody likes to be out $2,000" in closing costs, but believes the risk is worthwhile -- customers lock in the certainty of a low rate now and still have the option of paying a bit more to lock in an even better rate if rates fall further later.

"If you were in Vegas, you'd put your money down on that bet every time," he says.

Take away
The Federal Reserve's decision to cut interest rates again is risky, but necessary, Walters says.

"I just think we are in a very challenging environment here," he says. "The Federal Reserve and the federal government have to pull out all the stops right now to provide liquidity in the market to bring back trust, bring back some semblance of functioning to the credit markets."

Homeowners and others can make the best of a potentially bad situation by taking advantage of relatively low mortgage rates.

More importantly, consumers must protect good credit and rebuild tarnished credit, no matter how difficult that may be, Walters says.

"I know it's like saying to someone who's heavy, 'Hey, lose weight,'" Walters says. "I know it's not easy. But in the past you could get away with not having good credit. Quite frankly, in the grand scheme of things, it was priced pretty cheaply.

"Those days are over."

Bankrate's rate tables can help you compare mortgage rates in your area.

Bankrate can also help you calculate whether a fixed-rate or adjustable-rate mortgage is better for you.

To determine whether refinancing is right for you, use Bankrate's mortgage calculator.