The Three Largest Factors In Your Interest Rate

There are three major factors that affect how much you pay for a loan. Understanding these factors can save you time, money and frustration.

1. The Federal Reserve Discount Interest Rate.

Banks and other lending institutions borrow money from the Federal Reserve Banks. The discount rate is the interest rate a Federal Reserve Bank charges eligible financial institutions to borrow funds on a short-term basis. This rate is set by the boards of directors of the Federal Reserve Banks. The discount rate has a direct effect on the "Prime Interest Rate", which is the interest rate on short-term loans that banks charge their commercial customers with high credit ratings. You can get live information on the current Prime Rate at www.FedPrimeRate.info.

Of the three major factors that affect your interest rate, this is the one you have the least amount of control over.

2. Your FICO Score and Credit Report.

There are companies that gather and sell information about information on where you work and live, how you pay your bills, and whether you've been sued, arrested, or filed for bankruptcy. They are called Consumer Reporting Agencies (CRAs). The most common type of CRA is the credit bureau. Potential lenders will get your credit report from the credit bureau.

The FICO score is a method of determining the likelihood that credit users will pay their bills. It condenses a borrowers credit history into a single number.

You can protect your FICO score and credit report by paying your bills on time and not over-extending yourself. You also have the right to have false information removed from your credit report.

3. Lender Business Factors.

Banks and other lenders are in business to make a profit. They also exist in a competitive market. Like all businesses, they will balance their profit margin with competitive factors. If they charge too little, based on your credit history and the prime rate, they risk going out of business. If they charge too much, they risk losing you to a competitor. Therefore, in order to get the best deal you can, you should shop around.

Keep one thing in mind when you are shopping around. One of the things that affects your FICO score is the number of times your credit report has been accessed in a certain period of time. Therefore allowing too many potential lenders to run your credit report in a short period of time could be counterproductive. Three or four is typically a safe number. If you request an on line quote from several lenders, they won't typically run your credit report until after they have made their initial quote.

(You must explicitly provide a potential lender with permission to run your credit report. For that, they usually need your Social Security Number.)

In summary, the three major factors you pay for a loan are the prime rate, your credit history (FICO score) and business conditions such as competition. In order to get the best rate you can, you can do two things, keep up a good credit history by paying your bills on time, and shopping around for the best rate.

About The Author

David Brumbaugh is the owner and operator of EZandFree.com, which provides consumers with online tools for easily obtaining free competitive Mortgage and Loan Quotes. It also serves as a mechanism by which Mortgage Brokers can obtain legitimate qualified leads from people who need their services.

Terms of Use

Copyright 2004 David E. Brumbaugh. All rights reserved. This article may be published in your newsletter or web site. It must be reproduced in its entirety including the biography and web address.

Can You Acquire Good Credit Overnight? You Bet

Your credit file may not reflect all your credit accounts.... Read More

Credit Score: The Brightest Feather In Your Financial Cap

Credit scores are the most important aspect that determines your... Read More

What Is the Fair Credit Reporting Act and What You Should Know About It

The Fair Credit Reporting Act (FCRA) and the recent update... Read More

Choosing a Credit Counseling Company

If you have considered credit counseling as an option to... Read More

Are You The Only One Using Your Name?

Identity theft has become an epidemic. Millions and millions of... Read More

My Student Credit Card Adventure

And some practical advice too!My first credit card?I remember my... Read More

Protect Yourself Against Identity Theft

Identity theft is when someone uses, without permission, your personal... Read More

I?ve Heard About FACTA; What Does It mean?

What FACTA means is that if you, as an individual,... Read More

Boosting Your Credit Score To Get The Best Credit Card Deal

Making Your Credit Rating Work For YouOne of the basics... Read More

14 Common Credit Mistakes

Establishing credit and wisely managing your credit becomes easier when... Read More

Automobile Credit Report

When applying for a loan to purchase a car, the... Read More

Credit Reports: Find out why you have been refused Credit.

You may already have 2 or more credit cards in... Read More

Credit Repair Scams

"Erase Bad Debt !""Remove Negative Items From Your Credit Report"You've... Read More

Bankruptcy vs. Credit Counseling: What Should I Do?

Credit Counseling and bankruptcy are both ways to relieve the... Read More

The FICO Score Misconceptions

There are many misconceptions about credit scores out there. There... Read More

Credit Report ? How to Improve Your Credit Score

One of the great mysteries of life is how the... Read More

How Businesss Mess Up Their Credit Policies

In "Become the Squeaky Wheel" a book recently published, Michelle... Read More

Credit and Its Cost

What is Credit? Credit is money granted by a lender... Read More

Establishing Credit ? What You Need To Know Part 1

Establishing credit is one of the most important things you... Read More

Why Consumers Need a Nationwide Credit Freeze NOW

What do a shoe retailer, an online discount broker, and... Read More

Inflexible Friends and Plastic Assets, Why Money isn?t Buying Love Anymore

Consumers reject financial advice in favour of financial frivolityIt would... Read More

Credit Counseling: Could it Work for Me?

In the face of financial hardship, many seeking a responsible... Read More

Credit Education

Having credit education is like knowing how to read. It... Read More

Beginners Guide to Credit

I remember back when I was 18 and completely oblivious... Read More

Credit Card Disclosure Table ? Do You Understand It All?

In addition to the APR (annual percentage rate) and the... Read More