By Andrew Johnson
As expected, the Federal Reserve raised the benchmark federal funds rate up a quarter point this week, ending a seven year stretch of nearly zero percent rates. So what does that mean to consumers?
Over time, interest rates could start to rise. It would be wise to start paying some extra attention, and money, towards your credit card balances. By keeping your balances low and payments on time, you will be able to positively affect your credit score.
While car buyers have benefited from zero percent interest rates (usually reserved for those with only the best credit scores), the auto industry might continue on with zero percent to exhaust 2015 models and build incentive for new car purchases in the New Year. If a new or used car is in your future, now is a good time to start shopping around for a good interest rate.
While there won’t be huge increases in interest rates for home loans, they, too, will start to nudge up a bit. If you have considered refinancing your home loan, now would be a good time to start doing some research. Or, if you are considering buying a home in 2016, it would be a good time to start reviewing your credit report and score closely (see below.) Finally, if you have a HELOC (home equity line of credit), that will start to nudge up a bit, too, in terms of interest rates.
Gain control of your credit report and score
So, what can we do? While we can’t control the interest rates on loans, we can control how we put our money to work.
Shopping around for good interest rates, when it comes to auto loans and home loans, is a good start. Another way to help save money is taking control of your credit score.
For example, even though you might be approved for a home mortgage with a credit score in the 620-639 range (based on a $150,000 loan example), your monthly principal and interest payment will be $141 higher, than if your credit score was 760. Over 30 years, you would pay $50,000 more for the same exact home! That is why it makes sense to review your credit report (download one credit report from each of the three bureuas for free at www.annualcreditreport.com). Talk to a credit counselor about how to review your credit report and improve your credit score before applying for the loan.
GreenPath offers free credit report reviews and can help you build a personal finance budget that will get 2016 off to a great start.
For more information, call GreenPath at (800) 550-1961 or www.greenpath.org.