The Fear Of An Interest Rate Increase And Your Credit Score

There has been talk for many months that interest rates could be round to increase, following record low rates for some years. If they do, and it is nearly unquestionably more a “when” than an “if”, what will be the impact on you and why will your credit score be vital?

If you do not have any borrowings and do not intend to loan any money in the future then your credit score is virtually unquestionably not of any interest to you. However, at the other end of the spectrum for those with big mortgages it will be a huge issue. And even if you are just wanting to take out a loan to refurbish your kitchen or buy a new car, or to take a monthly mobile mobile contract, then your credit score might be the key.

The problem is that as soon as interest rates start to noticeably rise there is going to be lots of panic remortgaging. Already we are seeing some of the best mortgage deals on the market vanishing and credit card companies creeping up their card’s APRs. So when the central banks get round to increasing interest rates lenders are going to want to follow with more increases.

Currently record numbers of home owners are happily sitting on their bank’s standard variable rate mortgage. In the past this would have been an expensive waste of cash, whereas recently it has been a shrewd move. But once those rate rises are announced and start to take effect, that standard variable rate mortgage is not going to be so appealing.

Home owners up and down the country will be on the mobile to their lender trying to lock their home loan into a fixed rate, or at the very least a capped rate. And this is the major problem. Banks might merely move so much money around each month. It is not too much of an issue if everyone stays with their current building society, but you could be sure that most people will see it as an opportunity to save more and go to another lender.

Short term lenders will need to be picky about who they lend cash to. They will give those who are most likely to pay off their loans the best rates in order to attract them and offer worse rates for those customers mist budding to default. And how do they decide this – through looking at your credit score.

So when in the near future interest rates start to rise, if you haven’t got a perfect credit score then remortgaging may be a problem. If that is you, speak to an advisor now!

Written by Keith Lunt of compare mortgage rates. If you want to know more about how to compare fized mortgage rates, call in!

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