When a person goes to a bank to take a loan, bank usually doesn’t know him or her personally and therefore doesn’t know if he or she will repay that debt. There is always some risk involved and banks are trying to estimate that risk as precisely as they can. And based on the risk you bring to the bank by taking a loan there, you will get a specific interest rate.
Credit scores are algorithms that banks are using to determine someone’s ability to repay debt and are used to show how risky someone is. The higher your credit score the better. There are many websites that talk about raising credit scores and they will give you some advices on how to get better credit score and lower interest rates.
Please do not consider this websites as a way to trick banks. Consider them as tips to actually improve your credibility and financial stability. You will get tips such as reducing household spending, investing and saving, choosing the right credit card and so on. Improving your credit score is not as hard as one may think and it won’t just improve your financially score and get you lower interest rate it will improve your financial intelligence and make it worth while.
So to put it together. Credit scores are banks way of determining how stable you are financially and what interest rate you should get for your loan. Improve your financial stability to get a better credit score and lower interest rate.
