Economics Personal Finance

Q&A: What is interest?

Interest is the cost of borrowing money. The rates of interest a person receives from a lender depends on their credit score: the higher (or better) the score, the lower (or better) the interest rate. FICO Scores are used by 90% of top lenders to make decisions about credit approvals, terms, and interest rates.

Real-life application: Banks and credit unions pay interest for checking and savings accounts because they are able to use that money to make loans, which earn the bank a higher return than what they are paying out in interest.

Pro Tip: Credit cards have HIGH interest rates (usually 15-30% annually). Do whatever you can to not carry a balance over month-to-month.

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