How Banks Use Credit Scores
Banks set interest rates (the APR or annual percentage rate) based on the risk you pose. The higher the credit risk you appear to be, the higher your interest rate will be (you can also be denied new credit if your credit score falls below a certain number). On the other hand, if you have a low credit risk (represented by a high credit score), you’ll typically qualify for a lower interest rate.
Banks don’t advertise what credit score will give you a specific interest rate. That won’t be determined until you fill out their applications/documents. In general, if you have a good credit score you can expect to receive a lower APR, which will save you money in the long run because you will pay less in interest. Vice versa if you have a low credit score you’ll receive a higher APR, which will end up costing you more money in interest for the duration of the loan.
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