Page 22 - Winning The Credit Game Bundle (CK Patrick)

10 THE CREDIT GAME

Borrowers want you to lend them money so they can live in that
$300,000 house, and someday maybe sell it to get $300,000 or more in
cash without having to put up $300,000 cash up front. But they don’t
want to be charged $99,000 in interest. They want to get the lowest
interest rate possible.
They do this by having an excellent credit score. Here’s why and
how that works.
Remember when I noted above that the more money you lend, the
more money you make as a bank or creditor? But I appended a “usual-
ly.” That “usually” comes from the fact that a certain percentage of
borrowers won’t pay back the money they borrow. This represents a
loss for the bank or creditor. Obviously, banks wish to avoid such
losses.
They do this by measuring how good a person is at paying back
money they borrow. If someone frequently fails to pay their bills, the
banks must try to cover their potential losses from that person by
charging them a sky-high credit rate. This can even be profitable if the
bank actually gets many people to pay these sky-high credit rates over
time.
If someone always pays their bills promptly, on the other hand, the
equation changes. This is someone who a bank or creditor can be
pretty sure will pay back what they’re leant. This means this person
can be offered a much lower interest rate without risk to the bank.
And, more importantly, it means the bank has to offer them a lower
interest rate.
Why? Because everybody wants to lend money to these repayment
superstars. Their excellent credit means they are virtually guaranteed
to pay back what they borrow, with interest. That means that every
bank and credit card out there is competing to lend these people
money and get it paid back with just a little bit of interest. Whoever
offers the lowest interest rate may just be the one to capture that
person’s business.
By paying bills promptly on time and knowing other techniques to
ensure your credit score is as high as possible, you become one of the
borrowers that banks and creditors compete with each other to lend to.