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When the Federal Reserve made its first interest rate cut in September 2024, it didn’t come as a surprise. The central bank was expected to cut rates in response to slowing inflation.

The Fed then followed up its September rate cut with another one in November. And in the course of the next year, we could see a string of interest rate cuts if inflation keeps trending in the right direction.

Interest rate cuts are good for borrowers because they commonly lead to lower loan rates. It’s not that the Fed sets loan rates itself. Rather, when the Fed’s benchmark interest rate falls, consumer rates tend to follow suit. So come next year, you may find that it’s cheaper to sign a mortgage, finance a car purchase, or take out a personal loan.

But while falling interest rates might help make your next loan cheaper, that’s not the only factor that will determine how much you pay to borrow. There’s an equally important factor that could lead to huge savings if you play your cards right.

Focus on your credit score

Your credit score is a measure of how trustworthy you are as a borrower. A higher score tells lenders you have a history of paying bills on time, while a lower score might lead a lender to believe you may not end up repaying your loan on schedule. Because of this, a higher credit score will generally lead to a more favorable interest rate on a loan, while a lower score will lead to a higher rate to offset a lender’s risk.

It pays to do what you can to boost your credit score if you’re thinking about signing a loan in the near future. And there are several ways you can go about that.

First, pay all bills on time. Your payment history carries more weight than any other factor in calculating your credit score.

Next, work on reducing balances on your credit cards. The less of a total balance you have relative to your credit limit across your various cards, the more it can help your score.

If you’re juggling multiple balances, one thing that might help is to consolidate them onto a single credit card with a balance transfer. Many balance transfers also give you a 0% introductory interest rate, which can be helpful in getting ahead of your debt because you can focus on paying down your principal. Click here for a list of the best balance transfer credit cards.

Finally, review your credit report for errors. Specifically, pull a free copy of your credit report from each reporting bureau, since they may not all have the same information. The three bureaus to check are Experian, Equifax, and TransUnion. You can get a copy of your report from each bureau for free once weekly on annualcreditreport.com.

Shop around for the best interest rate

Any time you’re signing a loan, it’s important to shop around for a great rate. You should do that whether you’re seeking a mortgage, auto loan, or some other loan.

But know that the best way to take advantage of falling interest rates is to go in with the strongest credit score possible. If you’re able to boost your score, it could lead to a world of savings the next time you borrow money.

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