Your lines of credit
Basically it is often known and understood by most people that there are three main types of lines of credit. This article will explain the three different types along with different implications they can have for your life. A credit card will have the highest interest rate of the three different types of lines of credit. This rate can be either fixed or variable. Most credit cards have variable rates and you may need to search if you want a credit card with a fixed rate. The rate you pay is contingent upon the prime rate, which will be explained in a later paragraph. Rates often range from prime plus four percent to prime plus fifteen percent with many delinquent debtors paying higher rates than that. Credit card companies make a great deal of money off of the interest their debtors pay to them. If you carry a balance on your credit cards, you may want to look at balance transfers because you can receive zero percent for a certain period of time. The second type of line of credit is a personal line of credit. This rate often will be lower than a credit card and is often set at one to four percent plus prime. You seldom will find a line of credit with a fixed interest rate. Some credit cards will have lower rates than personal lines of credit. The third type of line of credit is a home equity line of credit. This will most times have the lowest interest rate and be possible depending upon the equity you have in your home. This can be the best deal for you because of tax benefits you can receive as well. The Federal Reserve sets an interest rate called the prime rate to help in different situations the economy is in. If the government is in bad times or close to a recession, the Federal Reserve will lower the prime rate so that the interest people pay goes down and they may want to go out and spend more money. It the economy is in boom times or there are concerns about inflation, the Federal Reserve will raise the prime rate, raising people’s interest rates so that people spend less money. It helps cool down the economy. The latest article has given you insight into why you want to use different lines of credit along with how these interest rates change.
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Posted by Credit Specialist
on Jan 3 2009. Filed under Credit Score.
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