As discussions of potential rate cuts by the Federal Reserve heat up, financial experts are advising Americans on strategic money moves to consider. In July, the Fed is expected to cut rates for the first time since 2024. Knowing how this affects credit scores, strategies for managing new debt, and optimizing savings will better equip consumers to make the most of these changes.
FICO scores, the most familiar scoring model, go from 300 to 850. Specifically, a credit score above 670 is deemed “good,” and a score over 740 is “very good.” People with excellent credit scores usually get approved for the best lending rates. Matt Schulz, LendingTree’s chief credit analyst, for one, stresses just how important maintaining a good credit score is. This need grows more urgent by the day as economic conditions change.
Schulz explains that managing debt is crucial. He states, “It is important for people to understand that they can have a far bigger impact on their interest rates than the Fed ever will.” A good rule of thumb is to keep all revolving debt below 30% of available credit. Doing so will help boost your credit score.
One late payment can severely damage a credit score, with the potential to drop it by 50 points or more. So, Schulz recommends that people frequently pull their credit reports and fix mistakes when they find them. Just one late payment listed on your credit report can lower your score by 50 points or more. If you find a mistake, do your part to correct it—do it right now!
Tommy Lee, senior director of scores and predictive analytics at FICO, cautions against too many credit applications. Although we appreciate his warning to consumers not to “go out and open 10 credit cards,” which will indeed hurt their scores, that’s a pretty poor example.
Americans may want to focus on paying bills on time each month, keeping balances low, and applying for credit only when necessary to boost their scores.
Santander research shows a surprising trend. A growing number of Americans are parking their savings in accounts that earn an average of just 0.39%. High-yield savings accounts and CDs currently have rates over 4%. That’s more than 10 times the national average! Consumer advocate Swati Bhatia points out this window of opportunity for consumers who are hoping to maximize their savings strategies.
It’s a hot market for a different kind of golden opportunity — current mortgage rates. The difference between that measure and the average rate for a 30-year fixed-rate mortgage is only a little less than 6.3% points. Current borrowers would only have their rates reduced by approximately a half a percentage point. According to Ted Rossman, senior industry analyst at Bankrate, they’d actually stand to gain a lot of these rate reductions. He mentions that “borrowers should get some relief in the coming months, although it’s worth pointing out that interest rates are still elevated.”
Even modest reduction in rates would not dramatically affect the exorbitantly high average credit card interest rate which is currently 20.13%. Schulz notes that “rate cuts are welcome news for Americans with debt, but one small reduction won’t make much difference when bills come due.”
Economists like Bob Schwartz from Oxford Economics suggest that if the Federal Reserve proceeds with additional rate cuts, it could indicate an effort to address concerns about the economy and job market. Mark Hamrick adds that “the betting is currently that the Fed will cut rates, concerned about burgeoning downside risks in the economy.”
Consumer sentiment on the mortgage experience seems to be on the upswing. John Hummel reports that “over the last several weeks, the consumer sentiment around mortgages has become a little healthier. We are starting to see some nice momentum.” This big change should offer increased motivation for homebuyers-to-be or refi’ers.
For individuals carrying high-interest debt, such as credit cards or auto loans with double-digit interest rates, targeting these debts should be a priority. Keeping these debt burdens in mind as consumers steer into possible rate reductions, Stephen Kates has some practical advice.