Question

of the following statements, which one or ones indicate possible effects of a low credit score?

i. you will have a difficult time qualifying for loans.
ii. any loans you take out will be relatively short-term.
iii. you will have to pay higher than average interest rates.

a. i only
b. i and ii
c. iii only
d. i and iii

Explanation:

Analyze statement I

Using the Credit Score Impact knowledge point
A low credit score indicates a higher risk of default to lenders, which directly leads to stricter qualification criteria and a higher likelihood of loan application rejection. Thus, statement I is a correct effect.

Analyze statement II

Using the Credit Score Impact knowledge point
A low credit score does not inherently restrict the maturity or term length of loans to being short-term; rather, it affects approval and pricing. Thus, statement II is not a standard direct effect.

Analyze statement III

Using the Credit Score Impact knowledge point
Lenders compensate for the increased risk of lending to individuals with low credit scores by charging higher interest rates. Thus, statement III is a correct effect.

Combine correct statements

Using the Credit Score Impact knowledge point
Since statements I and III are correct, the combination "I and III" represents the correct set of effects.

Answer:

• a. I only
• b. I and II
• c. III only
• d. I and III (Correct answer)