The higher a credit card applicant’s credit score is, the more likely the applicant is to get approved for a low interest rate. People with “excellent” credit scores will generally qualify for the best (lowest) interest rates, while people with “bad” credit will end up with higher interest rates. But credit scores are only part of the information card issuers use to determine an applicant’s interest rate. They also look at an applicant’s annual income and full credit report, which includes payment history and open accounts.
An interest rate is assigned when a credit card application is approved. So if your credit score goes down in the future, your interest rate won’t necessarily hit the roof. If the card issuer does raise your rate, they must send you a notice 45 days before it goes into effect. Plus, it can only apply to new purchases, so if you don’t want to pay the new rate, you can simply stop using the card within 14 days after you receive the notice. That way, there will be no purchases on your next statement that have the new APR.
Credit scores also play a big part in loan interest rates. Better credit scores will get better mortgage interest rates, for example, while a credit score in the lower 600s may make it difficult to get a mortgage at all. Having a high credit score can save a borrower thousands of dollars in interest over the life of a mortgage, so it’s absolutely worth it to improve your credit score before going mortgage shopping.
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