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

Think of it from lenders perspective. You are not running a charity, you want to get paid for lending money. So interests. But how much and who do you lend to? That depends on how likely your perspective borrowers are to pay your money back, because there is always a chance you don’t actually get your money back. So a riskier borrower has to promise you higher interests for you to consider lending them. Credit score is a estimate of that risk.