For savers, that’s welcome news. Interest rates on everything from basic savings to money market accounts and CDs will continue to track upward with the movements of the Federal Reserve. For borrowers, well, it’s another story. But don’t assume that you’re completely at the mercy of the interest rate tides. There’s much that is in your control when it comes to borrowing cheaply, and smartly, this year and in the years to come. Here’s what you need to do.
Master That Credit Score
You want a good credit score? Or a great one? You should. At current interest rates, someone with a score of 760 and up would qualify for a rate of 4.3% on a 30-year fixed-rate mortgage, paying $1,484 a month on a $300,000 loan. Someone with a score 100 points lower would pay $1,593 per month. Over the term of the loan, that’s a difference in interest of nearly $40,000.
And, nailing a good credit score isn’t magic. It’s good habits:
- Pay your bills on time every time (automating all the ones you can will help).
- Don’t use more than 10% to 30% of the credit available to you on each of your credit cards individually or all of your cards combined (pay them down if you’re over these limits).
- Don’t shop for credit you don’t need.
- Aim to maintain a mix of different types of credit to show you can repay different types of loans.
Freeze Your Credit
Even if you’ve got perfect credit behavior, being a victim of identity theft—as millions of people are every year—can mess with your ability to borrow in the future. The easiest way to shut down thieves is to freeze your credit with all three credit bureaus (Experian, Equifax and TransUnion). Once your credit is frozen no one—including you—will be able to qualify for credit in your name. If you want to apply for new credit, you’ll lift the freeze temporarily (we’ve done it, it’s a breeze), but meanwhile you’re safe from pilferers. It’s free, by the way. And you should do it for your children under 16 as well.
Shop Around Widely
Whether you’re looking for an original loan or a refi, a mortgage, auto loan, student loan or credit card, you should cast a wide net for the best rates. Why? Because certain lenders tend to plant a stake in the ground when it comes to aggressively courting certain types of borrowers—and those stakes move over time. For example, credit unions tend to have some of the best rates for auto loans, and there are a handful of lenders who have made refinancing student loans their primary business. Loan aggregation sites like magnifymoney.com and creditkarma.com can help you search. (Just note: Some aggregators prioritize or only show the listings for issuers of credit that pay them a referral fee.)
Remember My Money Rule No. 26: Just Because Someone Will Lend It To You Doesn’t Mean You Should Borrow It
Whether you’re talking about the size of your mortgage or the limit on your credit card, just because a lender is willing to approve you for a loan doesn’t mean that loan is a good idea for the overall health of your financial life. Keep in mind that every monthly payment you undertake is a choice that may prevent you from using your resources for other things for years to come.
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