Question

How does a low credit score affect a person who applies for a loan?
OA. It makes banks more likely to give the person a large, long-term
OB. It causes banks to charge the person higher interest rates on the
Oc. It allows banks to give the person a loan without checking his or
OD. It makes it easier for the person to get a loan with a poor debt-to-
loan.
loan.
her tax records.
income ratio.
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Answer 1

Answer: B) It causes banks to charge the person higher interest rates on the loan

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Explanation:

A lower credit score means that the person is more likely to be unable to pay the loan back, or they have had money problems in the past. The lower the credit score, the higher the interest rate. The higher interest rate is to counterbalance the higher risk the lower credit score applicant introduces. This is why choice B is the answer.

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Extra info:

• Choice A is false because banks will likely give out smaller loans as compared to larger ones, if the person has a lower credit score. The bank won't be as risky with the loan.
• Choice C is false. Banks always check credit scores, tax records, etc. This is especially true if they encounter someone with a low credit score and they will likely do more research. Banks do this research to properly assess any and all risk points of the loan applicant. This applies even to people with healthy credit and high credit scores.
• Choice D is false. Someone with a really high debt-to-income ratio will not have an easier time getting a loan compared to someone with a lower ratio. The bank will favor those with lower debt compared to their income. All the bank cares about is getting its money back plus interest. Banks will favor people with low debt-to-income ratios.

Answer 2

It causes banks to charge the person higher interest rates on the loan is the way a low credit score affect a person who applies for a loan. Hence, option B is correct.

What is credit score?

Credit score is the analyses of the person's previous records of the payments and transactions and based on that the person gets the credit score. It is also depended on the timely repayment of the person's credit card payment, as it shows the creditworthiness of the individual.

Despite the fact that ranges differ based on the credit scoring model, generally speaking, credit scores between 580 and 669 are regarded as fair, 670 to 739 as good, 740 to 799 as very good, and 800 and up as exceptional.

Thus, option B is correct.

For more details about Credit score, click here:

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