Learning Center
Basic Finance
How Credit Affects You
Preparing for Home Ownership
Steps for Buying a Home
Life as a Homeowner






 
Additional Resources
Module 2
How Credit Affects You
Credit and Loans
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Did You Know
  • A good credit rating can save you a great deal of money.
  • Lenders use credit scores to help determine interest rates.
  • It’s never too early to start building a good credit history.
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The Link Between Credit Scores and Loans

Higher Credit Score, Lower RateYour credit score directly affects your ability to get credit and how much you pay for all types of credit, from credit cards to home loans. In general, the higher your credit score, the more likely you are to be approved and to pay a lower interest rate on a loan.

A Higher Credit Score Can Save You Money

Why It's ImportantGood credit scores are a vital part of your financial health. Lenders use your credit score (among other factors) when deciding to approve a loan, setting your interest rate or credit limit on a credit card, or sending you a credit offer through the mail.

The Benefits of Improving Your ScoreWhenever a lender approves a loan or extends credit, there’s a risk that the borrower will not repay on time or at all. If the borrower doesn’t repay, it costs the lender a great deal of money. That’s why lenders will look in detail at your credit history and score as one important factor before making a lending decision. People with good credit histories and scores generally qualify for loans at lower interest rates because their credit history and score demonstrate that they are a lower risk to lenders. On the other hand, people with credit problems and lower credit scores represent a higher risk to lenders, and therefore if offered credit, they will usually be charged higher interest rates and receive lower credit limits.

Improve and RefinanceIf you currently have credit problems and obtain loans and credit at higher interest rates, take steps to improve your credit. As your credit improves, you may be able to negotiate with your lender(s) to get a lower interest rate or to refinance your loan at a lower rate.

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