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This is a guest post by Mr Credit Card from www.askmrcreditcard.com. Today, he is going to talk about the relationship between having a good credit score and the interest rates you pay on a variety of financial products.

Interest rates are at record lows, yet people are struggling to take advantage of them to refinance their homes. While many are simply upside down on their mortgage, others are penalized by having bad credit. It is the people who have the most to gain by refinancing their homes that are now being disqualified from doing so.

Think about a web, not the web in the sense of the World Wide Web, but an actual web made by a spider. The spider sits in the middle, and if anything tugs on one end or another, the whole web shakes. The same is true of your credit. Credit cards, mortgage payments, and car loans are the most likely sources of credit information that makes up your credit score. Other sources can be anyone who you owe money to including landlords, the IRS, or your doctor. When you take out a loan, each is sensitive to any of the credit information coming out of the other sources.

The better the credit you have, the better the interest rate you will get when it comes time to purchase a car or a home. People with excellent credit do well and people with bad credit suffer; it is a fairly steep slope in either direction. If you start making payments late, the worse your rates will get on your credit cards, and you will no longer qualify for proffered rates on car and home loans. On the other hand, if you maintain an excellent payment history, you will see lower rates across the board, making it easier for you to maintain your good history. It is no surprise that that the best balance transfer credit cards are only available to those with good to excellent credit!

Credit Cards Are The Key

For most people, credit cards are their first experience with loans, and their initial credit rating tracks their ability to pay their cards off on time. My parents love to tell the story about how they had a Sears credit card so many years ago in order to build some credit. They then leveraged their newfound credit for a gas card, before they could eventually secure an actual credit card. Times have changed, and people are now being bombarded with credit offers from a very young age.

Some will see their line of credit and decide that it is a great way to spend a huge amount of money, and pay only a fraction of that every month. Since the enactment of the CARD Act, we can now see in pretty clear terms on each statement how much those purchases will actually cost us over time. There is little excuse for ignorance. Later, they will be just one unexpected event away from defaulting on their cards, ruining their credit rating and crippling their ability to qualify for lower interest rates. They will even pay more for insurance and may even have difficulty being hired for some jobs.

Others will abhor paying interest on daily purchases, choosing to pay their balances in full and on time every month. It is this group that will be unlikely to default on their cards, and will always qualify for the lowest interest rates for home loans and car loans. Ironically, these people don’t care about their credit card interest rates, as they never pay them. To them, it becomes all about rewards. To paraphrase President Kennedy, they ask not what they can do for their credit card, they will ask what their credit cards can do for them.

How you use your credit card says a lot about how you manage your finances. It is the credit bureaus who are listening, as well as the finance companies for your home and your car. What they hear will always determine how much you pay.

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