Three major Factors In Your Interest Rate

There are three major factors that affect how much interest you pay for a loan or for your mortgage.

1. 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 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.

This is probably the most important factor; however as consumers we don't have any option to control it.

2. Lender Business Factors.

Banks and other lenders are in business to make money. If they charge lower interest rate, 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 always shop around and make sure you get the best deal out there.

You should remember that one of the things that affects your credit 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 not useful at all.

3. Credit Report and your FICO Score

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

You can help your FICO score and credit report by paying your bills on time and not getting into bug debt. You also have the right to have false information removed from your credit report.

In order to get the best rate you can, you can do few things; keep up a good credit history by paying your bills on time, and shopping around for the best rate.