It seems like those with good credit catch all the breaks when it comes to getting lines of credit. It’s easier for them to qualify, and they get lower interest rates.
Well, there’s a pretty good reason for it.
A person that has good credit has a low statistical probability of defaulting on a loan. Therefore, they are given a lower interest rate. A person with a lower credit score has a much higher probability of defaulting, therefore they are charged a much higher interest rate to cover the losses incurred by lenders by those who do default.
It’s all about mitigating risk.
One of my favorite finance bloggers, Cleverdude, has a great piece with specific examples of credit scores and interest rates that shows how much you can really save by working on that credit score.
Find out more here….
He concludes that “people with good credit also have an easier time keeping and improving their credit because they get lower interest rates, which lowers their monthly payments. This makes loans easier to pay back, and keeps more money in their pockets.”
Wise words from the Cleverdude, indeed.