There are some people who struggle with money. It’s an unfortunate truth, but some just can’t manage those finances. Maybe they’ve overspent, or backed the wrong horse, or maybe credit card use is rampant. Whatever the case may be, your credit score has likely been affected by your money habits. And if your score is low, this will adversely affect your ability to get a loan or a desirable interest rate. And that’s kind of the funny thing. You don’t have a good track record with money, so the creditor will give you a significantly higher interest rate, potentially putting you on the hook for more money. How does that work?
As stated earlier, your credit score will help dictate the terms of a loan offer when it’s made. Namely, it will dictate what your interest rate will be. Those with a lower credit score can expect a significantly higher interest rate, in some cases double that for which someone with a good credit score may qualify. The reason for this has everything to do with risk.
Those with good credit are seen as being financially reliable, meaning they will more than likely pay back whatever loan they are given on time and in full. The lower the score, the higher the risk. In order to protect their interests, lenders will tack on a high interest rate in order to help ensure they don’t lose money on the person getting the loan. In one way, it’s an extra incentive to make good on your payments.
If you’ve let your credit score slip over time, it will also take time (and money) to bring your score back up. Beware of predatory lenders that promise to boost your credit score by charging exorbitant interest rates. That may not be worth it. Bottom line: Check with your credit union first.