why are interest rates higher for people with low credit scores?

Question

I’m asking specifically about people in the U.S. looking to borrow from a lender.

In: 0

Answer 1

Credit scores show who likely you are to pay off your debt.

A low credit score means it’s high risk for anyone to lend to you, so a higher interest rate means they can recoup their money faster if you do eventually default, and they get a bigger payoff if you do manage to pay it back.

It’s literally just risk vs reward from the lender’s side.