How to Lower Interest Rates? |
By Frank Jones on May 25, 2011
.jpg.aspx?width=75&height=75) One of the first questions people have when looking to cut their debt is: How do I lower my interest rates? For the most part, lower interest rates are reserved for borrowers with high credit scores. Unfortunately, there is no magic pill which can make you credit score better over night. You credit score is based on a complex algorithm which takes into account many factors including your income, debt, payment history, total past debt, job history, and many other factors. Many people have little recourse to change many of these factors, but some of the most important ones can make a big difference in your credit score in just 6 – 24 months. By focusing on these factors you can change your credit score and lower your future interest rates.
Debt to Income Ratio
When considering your debt to income ratio you have two choices, either increase your income or lower your debt. Most people have very few options when it comes to increasing their income. You can find a better paying job, take on another job, or build a side income. Most people don't take on jobs which pay them less than what they're capable of earning, so finding a better paying job is not a viable option for most people. Additionally, taking on another job or building a side income will require an additional time commitment that is likely not sustainable for the long term. It may not seem this way when you start out, but reducing your debt is the easiest way to adjust your debt to income ratio. There are some lifestyle changes you could make that will go a long way and some tricks to paying off your existing debt which can really add up. As you reduce your debt to income ratio you will find that lower interest rates will become available to you.
Payment History
Many people have slow payments and late payments on their credit history which are dragging down their credit score and making it impossible for them to find lower interest rates. In order to achieve the lowest possible rates you will need to have at least 24 months of on time payments to all of your creditors. Even if you only make the minimum payment it is the act of making the payments that counts here. However, making only the minimum payment is a surefire way of staying in debt. Take a look at some tips & tricks for paying off your debts faster.
Past Debt
In some ways the old adage that 'those who have money, make money' rings true in the arena of lower interest rates as well. Having previous creditors who were willing to extend you a large line of credit will increase your chances of being offered the same or better interest rates in the future. Of course this depends on whether you paid back the previous loan in a timely fashion. If you have had low interest loans in the past then you will likely be offered these low interest rates again in the future.
Job History
This really relates back to the debt to income ratio discussed above. If you have been working at the same job for more than two years then it is best to keep that job and focus on reducing your debt. However, if you're planning to make a career change then you might as well do it at the beginning of your process toward lower interest rates. Having some stability in your job history shows stability in your income and lowers your interest rates by increasing your credit score. |
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