One doesn’t usually get to know how, and why interest is calculated. At FSP Bank, interests is transparent, and based partially on your credit score. This is in the form of Base + Adjustment. The base is dependent on the product. For example, a credit card will have a much higher base interest than a mortgage will. However, the adjustment will be the same for the person applying no matter whether he chooses a credit card, mortgage or both.
The adjustment is calculate as (900 – Credit Score)/100. For example, Joe’s credit score might be 350 while Jane’s is 800. The adjustment will be very different for either of these customers. Let’s look at the way it is calculate. Joe’s adjustment will be (900 – 350)/100 = 5.5. If the credit card rate is 17%, then Joe’s interest will be 17 + 5.5 for a total of 22.5%. However, Jane’s adjustment will be (900 – 800)/100 for a total of 1. Therefore, her interest rate is 18% for the same product. As the relationship with the customer grows, so will either higher or lower interest rates will occur. A bad relationship will lead to a higher interest rate where as a good relationship will result in a lower interest rate.