Getting lower interest rates is possible if you go about it in the right way. Qualifying for lower rates can save you thousands of dollars in interest and get you out of debt sooner. Even if you have excellent credit, you still need to shop around to find the best rates, and that can take some serious effort. Banks and other financial institutions use different standards when assessing the risk a borrower poses. During times when banks look for reasons not to lend money, you need to know what you can do to qualify for a low interest rate.
Request your credit score and credit report (see Resources). You will need a credit score of more than 720 to get the best interest rates. Ideally, your credit report should be free of bankruptcy, collections or other serious delinquencies. Dispute any information on your credit report that is inaccurate. If the credit-reporting agency finds that a creditor reported incorrect information on your credit report, it will need to update your report immediately.
Correct any major problems with your credit before applying for a loan. Borrowers with better credit ratings get lower interest rates. Bankrate advises working on getting your credit score as high as possible to qualify for lower rates. Lenders usually require a credit score of 740 or higher for borrowers to be approved for the lowest loan rates.
Make all payments on time each month. Pay off any debt that has defaulted or accounts that have been charged off. Make payment arrangements if you can’t afford to pay off the debts entirely. Lower your balances on credit cards so that they are less than 30 percent of your available credit balances.
Refrain from applying for credit or having other inquiries on your credit report for at least three months before you intend to obtain a new form of credit or apply for a home loan. If you have too many inquiries on your credit report, a lender may think that you are having trouble obtaining credit making you a high lending risk. In that case, the lender could charge you a higher interest rate. A single inquiry can deduct five points off your credit score, which isn’t necessarily bad unless you are trying to raise your credit score, when every point counts.
Wait to apply for credit until you can demonstrate permanence to a lender. Work at the same job for a minimum of two years before applying for credit. Additionally, you should live in the same residence for at least two years before attempting to obtain credit. By proving stability, you are more likely to be approved for credit and receive lower rates.
Check with more than one lender to determine who will offer you the best interest rate. Start with the bank or financial institution where you already have accounts. Sometimes these lenders will offer you lower interest rates if you have a good history with your accounts at that bank. This can be true even if you’ve had some other problems with your credit in the past.
Lower the amount of interest you pay on a loan by putting more money down. It pays to save until you have a significant down payment before applying for a home or auto loan. Aim to save more than 20 percent of the total amount you need for the purchase.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.