How does your credit score affect interest rates?

A higher credit score is meant to indicate a lower risk for lenders. That is, the higher your credit score, the more reliable you are considered as a borrower. This is why lenders are willing to negotiate a lower interest rate if you have a higher credit score (usually 670 and above).

You are likely to pay lower annual percentage rates (APRs) on credit cards and can negotiate a lower interest rate on auto and home loans if you show a history of good credit behavior: on-time payments, low credit balance, low credit utilization ratio, and a diverse credit mix.

The interest rates you pay are also significantly influenced by other factors like your income, cash reserves, and debt-to-income ratio. This is more relevant for auto and mortgage loans where factors like the model year, brand, location of the house, down payment, and the duration and type of loan are also influential in the amount of interest you pay.