If you’re reading this, we hope that you already know just how important your credit score is. To review, your score is somewhat of your financial lifeblood, and those three little digits can tell lenders if you’re an at-risk borrower, whether or not you should even qualify for a loan and what interest rate you should pay on said loan (should you qualify for one). Generally speaking, the better your credit score, the lower the interest rate – and vice versa. So, yes it is important – and in 2016, it’s arguably going to be more important than ever. Why? Because the Federal Reserve Board elected to raise the benchmark federal funds rate. We explain:
About the Benchmark Federal Funds Rate
You’re probably wondering just what impact the raising of the benchmark federal funds rate has on the value of your credit score. Consider this: the aforementioned rate, essentially, is the determining factor in how high of an interest rate banks and financial entities have to pay to borrow from each other. When the benchmark federal funds rate increases, so does the minimum interest rate, or prime rate, that lenders will charge even their most exceptional customers.
What the Rate Increase Means
Since the prime rate is likely to go up, so will interest rates in general, even if your credit is exceptional. This means that new loans are likely to be more expensive, as will any existing loans with variable rate financing. Those who will be particularly hard hit are individuals with bad credit, as loans and credit cards may become more difficult to attain (not to mention the likelihood of even higher interest rates for at-risk borrowers). The Federal Reserve Board has elected to raise the benchmark federal funds – and the board is likely to approve further increases in the future, hence why your rating and score is so important as we begin 2016. So if it is less than stellar, start making efforts now to improve it. Some common credit repair practices include committing to paying bills on time, lowering your debt-to-credit ratio and, perhaps easiest of all, checking your credit report at least once a year to ensure its accuracy related to your consumer behavior. With the funds increase, interest rates are likely to increase across the board, for those with both good and poor credit. Make the commitment now to elevate your score so that you can ensure you’re paying the least amount possible on any loans or credit cards.