What is a major consequence of having a low credit score?

What is a major consequence of having a low credit score?

• A. Higher eligibility for loans
• B. Higher interest rates on loans
• C. Increased savings offers
• D. No impact on loan applications

Answer: (B)

Having a low credit score directly impacts the interest rates that lenders will offer on loans. A credit score is a reflection of an individual's creditworthiness, which helps lenders assess the risk of lending money. When a score is low, it indicates a higher risk of default, leading lenders to charge higher interest rates to compensate for that risk. This means that individuals with low credit scores often end up paying more over the life of a loan compared to those with higher scores, as lenders seek guarantee of repayment against the potential for future losses. The other options do not accurately reflect the consequences of a low credit score. For instance, low credit scores typically lead to reduced eligibility for loans rather than higher eligibility, and they do not result in increased savings offers from financial institutions. Lastly, a low credit score definitely has an impact on loan applications, contrary to the notion that it would have no impact.

Having a low credit score directly impacts the interest rates that lenders will offer on loans. A credit score is a reflection of an individual's creditworthiness, which helps lenders assess the risk of lending money. When a score is low, it indicates a higher risk of default, leading lenders to charge higher interest rates to compensate for that risk. This means that individuals with low credit scores often end up paying more over the life of a loan compared to those with higher scores, as lenders seek guarantee of repayment against the potential for future losses.

The other options do not accurately reflect the consequences of a low credit score. For instance, low credit scores typically lead to reduced eligibility for loans rather than higher eligibility, and they do not result in increased savings offers from financial institutions. Lastly, a low credit score definitely has an impact on loan applications, contrary to the notion that it would have no impact.