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Consumer Advisory Rising Interest Rates Emphasize Importance of Credit...

On Tuesday, the Federal Reserve raised the federal funds rate to 3.75%, the 11th increase in the past 15 months. The federal funds rate is the interest rate that banks charge each other. As a result, commercial banks raised their prime lending rate to its highest level in 4 years, affecting everything from credit cards to home equity lines of credit.



Interest rates for a 30-year mortgage have generally stayed below the 6 percent threshold in the past year. However, with the latest rate hike, this is expected to change. Analysts are forecasting that rates will be pushing the 6 percent barrier by the end of 2005, and could be as high as 6.75 percent by the end of 2006.



This recent development underscores the importance of ensuring that consumers are aware of the contents of their credit reports. In particular, they need to pay attention to their credit scores.



"Credit scores determine what interest rate you're charged when you get a loan," according to www.creditscorebooster.com/Articles/publish/index.shtml, an internet resource for consumers that specializes in educating consumers on the importance of credit scores.



"Each of the three major Credit Bureaus uses scoring models with complex mathematical methods to help determine credit patterns and forecast repayment performance for each consumer which has established a credit file within the three major credit bureaus. The scores measure good and bad credit and establish risk a potential borrower represents to the lender for repayment of loans."



Credit scores can be anywhere from 300 to 800. Generally, conventional mortgage lenders will consider a minimum score of 620 for approval. Federal Housing Administration (FHA) mortgages have more relaxed guidelines. However, scores under 620 are considered to be in the "subprime" category. Subprime lenders take on more risk in approving people with less perfect credit profiles, and therefore issue loans with higher interest rates.



Today, mortgage rates are at 5.74 percent. This interest rate is what someone with a high credit score well above 620 can expect to get from a mortgage company. For people with lower credit scores, today's rate can be as much as two to ten percent higher. With rates on the rise, it is even more important that consumers possess a high credit score in order to secure the lowest rates available in a higher interest rate climate.



Resources such as www.creditscorebooster.com/Articles/publish/index.shtml teach consumers how to increase their credit scores on their own, without the use of expensive credit repair firms, whose effectiveness is nebulous at best. Even consumers with low credit scores who might only qualify for subprime mortgages can learn methods to raise their credit scores to conventional mortgage levels, in as quickly as 24 hours.



With the Federal Reserve determined to control inflation pressures, analysts expect rates to continue to increase. Consumers are advised that now is the time to make sure their credit scores keep pace.

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