Recently, I was contacted by a single mother who was turned down for a loan.

“I work as a casino dealer in one of the casinos here in Atlantic City. I’ve been working there for seven years,” she writes. “I feel so depressed because the loan officer told me that I can’t get a mortgage because my debt is way too high.”

With credit card debt overwhelming her, she had previously entered a credit counseling center program to consolidate her bills and lower the interest she pays on her credits cards. Each month she pays the center $288 to pay down her debt. In addition to that, she has $80 automatically deducted from her paycheck that goes to pay off her car.

The loan officer told her she can’t get a loan until she pays off all her bills, unless she has somebody co-sign the mortgage. In her case, that isn’t an option.

She has a little bit of money saved for her down payment, and has plans to purchase a ranch style modular home on a lot for about $90,000, which is the amount she’d qualify for based on income.

One of the great misconceptions about mortgages and loans, however, is that having the income is all that matters.

In fact, credit matters more than income. If you have excellent credit, with no blemishes, you’re in control of the mortgage process. If you have credit problems, including late payments, unpaid bills, charge-offs, and bankruptcies, these are far more damaging to your prospects of getting approved for a loan.

That’s because lenders generally run your credit history through a software program that analyzes your credit and assigns you a credit score. Every ding and blemish knocks points off your score. If your score is too low, your loan application will be denied.

Rick Bechtel, a loan officer with the Chicago branch of Chase Manhattan Mortgage, wonders if this future home buyer understands the difference between having a credit history full of late payments and delinquencies versus having lots of outstanding debt but a clean credit history.

You can carry $30,000 in credit card debt, for example, and still have very good credit. How does that happen? If you make all of your payments on time, and don’t charge your credit cards to their maximum limits, your credit score should look pretty good. But if you aren’t responsible about paying your debt, lenders rightly worry about how you’ll good you’ll be at repaying your loan to them.

Improving your credit isn’t as difficult as you might imagine, however. It takes time and tenacity.

“If she has late payments, then she would need to demonstrate an ability to manage credit responsibly over a period of time,” typically six months to a year, Bechtel says. “If she simply has a lot of debt, then she should first pay down some of the debt with her savings in order to eliminate the 18.9 percent interest.”

Bechtel believes saving for a house isn’t as important in the long run as paying off high-interest rate debt. Every dollar you prepay at 18.9 percent effectively earns you 18.9 percent on that dollar.

Dick LePre, senior loan officer with Homeowners Finance, in San Francisco, agrees that having good credit is paramount to getting approved for a loan. “I think it is important than anyone seeking to buy their first home first strengthen their credit. If they understand the value of this and abide by it,” they’ll be able to get their loan.

Another issue to consider is the home buyer’s credit counseling center payoff plan. It should help a credit history seriously out of balance. Some lenders, however, advise waiting until you are most of the way through the program before you start to apply for a home loan.

Also, each lender works with different investors. Lending money to individuals with less than perfect credit often requires a lender with the patience, fortitude and time to help. While time may be in short supply these days because lenders are busier than they’ve ever been, there are a few kind souls out there who are willing to pitch in and assist these home buyers.

“One loan officer does not equal all loan officers,” notes Bechtel. “Talk to your own bank first. If you have a poor history with your own bank, talk to other lenders, including mortgage brokers who specialize in handling customers with difficult credit.”

Bechtel also suggests home buyers talk to their employee credit union, the human resources department of their company, and ask where have their colleagues and friends have gone for mortgages. Real estate agents and attorneys are also good sources for a referral.

Finally, check with your local housing authority. There may be ongoing programs to assist first-time buyers, including free education programs that help you work through important homeownership issues.

One thing you’ll definitely want to avoid are so-called "special first-time buyer loans” designed to capture people with credit trouble and lock them into a super high interest rate home loan. If someone tells you to take a home loan at 13 percent interest today and they’ll refinance it for you a year from now, run the other direction.

No matter how desperate your personal situation, you can improve it. Catherine Williams, president of the non-profit Consumer Credit Counseling Services of Greater Chicago, once relayed the story of a client who was more than $100,000 in debt, married with a child on the way, and no job prospects. Eight years later, he is the owner of a successful business, a homeowners with all of his debt, except his mortgage, paid off, and he and his wife have two healthy children.

If you’re willing to work at it, your quest for homeownership can have a happy ending, too.