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16 January, 23:06

Patrick Guitman recently graduated from college with $20,000 in student loans and $5,000 in credit card debt. He usually makes minimum payments on his debt and he has been late with three payments in the last year. He wants to buy a new car but was told that his interest rate on a loan would be very high. What is the most likely reason this might be so

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  1. 17 January, 00:34
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    Patrick has a poor credit score

    Explanation:

    Patrick is categorized as a high-risk customer. He has a poor credit score, and that why he is being charged a high-interest rate. A credit rating or credit score is a numerical value assigned to borrowers as an assessment of their repayment behavior.

    A high credit score is obtained by making prompt repayment of all debts, especially credit cards, as they have more weight. Late repayments of loans and missing installment payments result in a low or poor credit score. Patrick has missed three repayments, which will affect his credit score negatively. Lenders will view Patrick as a borrower with a high probability of default, thereby charging him higher interest rates.
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