Millions of Americans have credit in their names but, because of borrowing missteps they might have made through no fault of their own during and following the recession, are paying high interest rates on those accounts. Unfortunately, many might not even know that this is the case, and as such, might face the need for credit repair without being aware of it.
High interest rates can significantly add to borrowers' outstanding debts and therefore endanger what should otherwise be a clean credit standing. It is for this reason consumers should do all in their efforts to find out what interest rates they're paying and, if possible, either negotiate or refinance the credit they have so that those come down considerably. Doing so could help them to save large amounts of money over the course of the year and potentially put them in a better position to deal with all their various credit accounts going forward.
Why can high interest create credit risk?
When many consumers sought new lines of credit immediately after the end of the recent recession, they might have done so with damaged credit scores — through borrowing mistakes such as making late payments or carrying balances too large when they were forced to rely more heavily on credit cards in their everyday lives — and that in turn might have put them at a disadvantage. When consumers with low credit ratings seek new accounts, they are typically either rejected for it outright because lenders are concerned about the risk associated with lending to people with diminished scores, or are charged higher rates and more fees as a means of ensuring a higher return on that investment in the event of delinquency and default down the road.
High rates and extra fees compared with what borrowers might have been used to in the past will likely lead to far more debt for those who tend to carry at least some balance over every month, and that consequently increases what is known as their "credit utilization ratio," which makes up 30 percent of borrowers' scores. In general, lenders want to see borrowers whose debt totals 30 percent of their total credit limits or less; any more than this will consequently reduce their scores considerably, and high rates can make larger balances grow even more quickly. This might also put them at risk for more late payments because it will likely also drive up the size of their required monthly minimum payment, potentially to levels they cannot afford to pay back every month.
As such, since it has been a number of years since the recession ended, many consumers might just now be getting their credit back in order as the economy continues to recover, and they could be in a better position to obtain better terms on the cards they acquired immediately following the downturn.
How to improve rates
In some cases, getting a better rate on a credit card might be as easy as calling one's lender and simply asking for it. Those who have been able to substantially increase their credit scores from the lower levels seen during and in the wake of the recession might find that some lenders are a little willing to be flexible in these cases, particularly for borrowers who have a history of making all their payments on time for as long as they've had the account. It will probably not always work, but it's certainly worth trying.
For borrowers who have other types of more sizable accounts — auto loans or mortgages, for instance — getting a new, lower rate is a more complicated process, but can pay even greater dividends. For instance, millions of Americans are paying interest rates on their mortgages that can be more than double those being observed in the marketplace now, and as such are paying substantially more than they could be in interest charges every year. Refinancing might come with a larger up-front cost than borrowers might expect, but it can also pay dividends for years going forward, and potentially save them tens of thousands of dollars or more over the life of their loans.
Consumers hoping to maintain clean credit in general might also want to take the time to make sure they check their credit reports with regularity. Doing so will help them to guarantee that there are no unfair markings listed on these documents which could in some way diminish their credit standings. Working with a credit repair law firm in the event that any such entries are discovered may help to remediate the situation and return affected borrowers to where they deserve to be. That, in turn, can help them in their efforts to obtain the most affordable rates and other loan terms possible.