4 things you can do to get a lower interest rate
Although the interest rate you receive is partly based on factors you don’t have control over, like inflation or demand, there are some factors you can control that’ll improve your credit score over time. Lenders use your credit score to determine the risk in lending money to you, so the higher your score is, the better your chances are of getting a lower interest rate.1
By making the following four changes to your financial habits, you’ll be on your way to getting the best rate possible.
1. Don't use all of your available credit
Use less than 25% of your available credit (or credit utilization) to show you can manage credit limits. Andrea Larocque, Branch Manager in Bridgewater, Nova Scotia, advises customers to keep their credit card balances low when looking to bump up their credit score. “If your interest rate is high, consider doing a balance transfer to a credit card with a lower interest rate,” Andrea suggests. “This way you’ll pay less in interest and you’ll bring down your balance quicker.”
Pay more than the minimum on your accounts to show you’re proactively managing debt."
2. Limit credit report inquiries
When you apply for credit, you authorize the lender to pull your credit report (a “credit inquiry”). Try to limit the number of inquiries you make, since a typical inquiry could reduce your credit score by up to 5 points and will remain on your credit report for 24 months.2 Andrea recommends keeping credit inquiries to a minimum. “Make sure to do your research if you’re going to apply for credit and figure out what products are best for you before you start filling out applications,” she says.
3. Increase payments (and pay on time)
Pay more than the minimum on your accounts to show you’re proactively managing debt. Even $5 or $10 extra each month will make a difference. Andrea also advises customers to make payments on time. “Credit reports usually update once a month so it’s important to make payments on time. When you make steady payments on your accounts for at least six months, you’ll start to see an improvement with the interest rates you’re offered.”
4. Consider debt consolidation
Debt consolidation can help rebuild or improve credit when faced with multiple bills. Andrea sees the benefits of consolidating debt for customers who have credit cards with high interest rates. “Not only is it one easy payment, it also frees up your credit card in case of an emergency,” she says. “Also, a consolidation loan can usually offer a lower interest rate than what’s on your credit card.”
Following the tips above can make a positive impact on your credit score and increase your trustworthiness with lenders. Over time, you’ll see as your credit score improves so does the interest rate you receive.
This article is for informational purposes only. For personalized financial advice, you should contact a qualified financial advisor.
1 "What is a credit score?” TransUnion. Web. 26 September 2016.
2 “The difference between hard and soft credit inquiries” TransUnion. Web. 26 September 2016.