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What is risk-based pricing?

Risk-based pricing is when a lender offers you less favorable loan terms, such as a higher interest rate. The lender decides this based on information in your credit report or application.

Lenders often charge higher interest rates to people they consider to be higher risk borrowers. This may be the case for those who have recently declared bankruptcy, lost a job, or are several payments behind on their mortgage.

Each lender uses its own process to determine the interest rate and loan terms they offer you. This is largely based on your credit score, employment status, income, outstanding debts, and other factors.

If a lender relied on a credit report to make a less-favorable lending decision about you, you should get a risk-based pricing notice. This notice tells you you’re receiving less favorable terms than other borrowers because of negative information on your credit report. It’s always a good idea to check your credit reports before you shop in order to spot errors or inaccuracies that impact your credit scores.

Lenders cannot use certain legally prohibited factors, such as your race, gender or age, when deciding whether to give you a loan or how much to charge you. If you believe a lender is violating your rights, you can submit a complaint with the CFPB.

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