In which scenario would a borrower most likely face a higher interest rate?

A low credit score typically indicates to lenders that the borrower is a higher risk. Credit scores are a numerical representation of an individual's creditworthiness, with lower scores suggesting past issues such as missed payments, defaults, or high credit utilization. As a result, lenders compensate for this increased risk by charging higher interest rates to borrowers with low credit scores. This is because they want to ensure that the potential additional income from higher interest payments offsets the likelihood of default.

In contrast, scenarios associated with a large down payment, a long credit history, and multiple credit accounts generally suggest to lenders that a borrower is more stable and less risky. A large down payment reduces the loan amount and indicates a commitment from the borrower, while a long credit history demonstrates reliable borrowing behavior. Having multiple credit accounts, if managed well, can also show that an individual is capable of handling credit responsibly. Therefore, these factors typically lead to lower interest rates rather than higher ones.