Interest Rates And Credit Reports by widya.aryaniz


									                       Interest Rates And Credit Reports

If you are currently paying for your mortgage, your financed vehicle or for the funds you
loan from the bank then you definitely know about interest rates. Some financial
institutions also call it finance charge. It is the fee that a lender charged to a borrower for
borrowing. Most often it is expressed in percentage, known as annual percentage rate
(APR). It is derived through dividing the amount of interest by the original financed
amount or the principal. For instance, your financing company charges you $1000 per
year for a vehicle financed for three years with an outstanding balance of $10,000. Your
annual percentage rate will be 10% ($1000/$10,000*100).

Many factors affect the annual percentage rate. It could be the inflation rate, it also
increases when the inflation rate increased; your geographical location, some states have
higher interest rates because they also have higher cost of living and if you are trying to
finance a house or vehicle it would also depend on the quality of the product or whether it
was used or new. You may sometimes wonder though why you have different finance
rate from someone who has same location as you and you are financing for the same
product or borrowing the same amount of money. It could most likely be because of your
credit score which reflects through your credit report.

It is important to understand how your credit report influences your interest rate. Your
credit report does not directly contain your finance charge however your creditors based
it depending on what bracket your credit score falls. For example, for borrowers with
700-850 credit score the creditor may charge an annual percentage rate of 10%, for those
below 700 may have 15% and those below 600 may be charged 20%. Of course the
higher the credit score the lower the interest rate will be. This shows how important
maintaining a good credit is in your future financial plans.

However, because of this relation of credit reports to interests if you are one of those
people who entered into flexible financing options you may get worried when changes
happen within your financing contracts. When your interests are reduced although the
remaining outstanding balance will not change you may thought that this abrupt
difference may reflect on your credit badly or some future creditors may interpret it as
suspicious and deny your loan application. However, this is just a misconception about
interests and credit reports because once again, interest rates do not show on credit
reports. The monthly payments are included on the account history of your credit report
but this does not entirely affect your creditor's decision on approving or denying your

You may have just realized how significant having a good credit score is not only
because it would allow you for immediate loan application approval but also because it
would establish how much you will need to pay for your loan. This should also be a
realization to pay close attention to your credit reports.

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