What might be a result of having a low credit score?

What might be a result of having a low credit score?

• A. Higher chances of loan approval
• B. Lower interest rates
• C. Higher interest rates
• D. More favorable loan terms

Answer: (C)

A low credit score often signifies to lenders that a borrower may be a higher risk. This is because credit scores are designed to reflect an individual’s creditworthiness based on their borrowing history, payment behavior, and overall financial reliability. When a credit score is low, lenders may see the borrower as more likely to default on a loan or miss payments, leading to a higher perceived risk. As a direct consequence of this increased risk assessment, lenders typically respond by charging higher interest rates for loans extended to individuals with low credit scores. Higher interest rates serve as a protective measure for lenders to compensate for the additional risk they are taking by lending to someone who has demonstrated difficulty in managing credit in the past. Thus, borrowers with low credit scores can expect to pay more in interest over the life of a loan compared to individuals with higher credit scores who qualify for better terms. The other answer choices reflect a misunderstanding of how credit scores impact lending terms. For instance, higher chances of loan approval, lower interest rates, and more favorable loan terms are generally associated with higher credit scores, not lower ones.

A low credit score often signifies to lenders that a borrower may be a higher risk. This is because credit scores are designed to reflect an individual’s creditworthiness based on their borrowing history, payment behavior, and overall financial reliability. When a credit score is low, lenders may see the borrower as more likely to default on a loan or miss payments, leading to a higher perceived risk.

As a direct consequence of this increased risk assessment, lenders typically respond by charging higher interest rates for loans extended to individuals with low credit scores. Higher interest rates serve as a protective measure for lenders to compensate for the additional risk they are taking by lending to someone who has demonstrated difficulty in managing credit in the past. Thus, borrowers with low credit scores can expect to pay more in interest over the life of a loan compared to individuals with higher credit scores who qualify for better terms.

The other answer choices reflect a misunderstanding of how credit scores impact lending terms. For instance, higher chances of loan approval, lower interest rates, and more favorable loan terms are generally associated with higher credit scores, not lower ones.