Interest Rate Hike
The Federal Reserve recently raised its key interest rate for the first time in two years to tamp down rising inflation and prices that have soared since the coronavirus crisis began. The central bank’s decision to raise rates impacts many facets of the economy, including the cost of borrowing and saving.
A rate hike will directly impact your existing debts, such as mortgages and auto loans, but only if those loans have adjustable interest rates. The higher rates will cause the payments on those loans to increase, but it won’t affect your monthly payments on fixed-rate mortgages or student loans. The rates on credit cards may also rise, but those rates typically reset much more frequently, often based on an index plus a margin as specified in your loan or cardholder agreements.
When the Fed raises its rate, it also increases the interest rates on new loans and credit accounts that are opened. That’s why it can be smart to get organized now if you’re considering taking on any additional debts soon.
Whether you’re in the market for a mortgage, car or credit card, there are steps you can take to minimize the impact of an interest rate hike. For instance, if you’re close to your credit limit, you can ask your lenders for lower rates. Ensure you make your payments on time to build a solid credit report. Register for Experian Boost to instantly add your eligible rent, utilities, cellphone, insurance and some streaming subscriptions to your reports and scores.
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