Question

Melissa is a college student who has a cell phone, utilities for an apartment, and a credit card in her own name. She is not very careful with her bills and often pays these bills late, sometimes missing a payment entirely. If she tries to get a low rate car loan after she graduates from college, what will likely be the effect of her poor credit record?

1) She will be seen as someone with bad borrower "character" because she pays late and misses payments.
2) She will have no problem because the behavior of college students cannot be used against them later in life.
3) She will be favored as a borrower because she has a long credit history and bill-paying experience.
4) There will be no effect because creditors expect that many young people are sloppy with bills.

Answer 1

Melissa's poor credit record will likely lead to being seen as a borrower with bad character, potentially resulting in higher interest rates or loan denial. Lenders base decisions on financial history, and a good credit score is essential for favorable loan terms.

Step-by-step explanation:

If Melissa tries to get a low rate car loan after she graduates from college, the likely effect of her poor credit record would be that she is seen as someone with bad borrower "character" because she pays late and misses payments. This could result in her facing higher interest rates or even being denied a loan, as lenders view her as a greater risk. A history of late payments and missed payments makes a borrower appear less likely to repay a loan on time. Lenders make their decisions based on a borrower's past and present financial behavior, and a poor credit score can impact loan approvals and conditions.

It's important to understand that credit is borrowed money that one agrees to pay back within a set time frame. Having a good credit score is crucial because it gives lenders a quick overview of a borrower's reliability. One's credit score can be improved by consistently paying all bills on time and by not overextending the use of available credit.