Highest Interest Rates

Consumers attempting to qualify for a home mortgage or even a car loan are frequently surprised to learn that the low interest rates so prominently displayed on websites and placards to do not actually pertain to them. Instead, due to low credit scores they may only qualify for the highest interest rates the bank or financial institution charges. This underscores the importance of becoming well aware of all notations contained in a credit file and the score that is assigned to it.

As a general rule of thumb, banks display subtle differences when it comes to terming one credit portfolio as ‘good’ and another one as ‘excellent.’ To avoid paying the highest interest rates, consumers will do well to inquire about a lender’s internal breakdown of credit rankings. Shopping around here – even if the differences are only subtle – can make a vast difference when it comes to calculating the long-term cost of the loan product.

For example, if Bank A offers a low interest rate to consumers with a FICO score of 720 – which is close to the American median score of 723 – while Bank B makes the cutoff at 715, the consumer whose score is somewhat below the median may still qualify for a good rate with Bank B, but be charged higher interest at Bank A. This calculation becomes even more important if the consumer’s credit is slightly damaged. Bank A might classify a damaged FICO score as one that falls below 650, while Bank B may be slightly less generous by keeping it at 675.

Avoiding the highest interest rates requires the consumer to also understand how personal finance decisions may adversely – or favorably – impact a credit profile. For example, timely payments and the capacity of credit used make up the lion’s share of the credit profile. Late payments and high credit card balances automatically lower the consumer’s FICO score and may make him eligible for the highest interest rates.

Other notations, such as the length of the credit history or the types of credit used, do not have that great of an impact, if the first two aspects are handled properly. That being said, they, too, factor into the overall rating of the credit profile and the subsequent interest rates for which it qualifies.