One way for a bank to deal with credit risk is to:

Question

Quizplus · Accepted Answer

Adding a mark-up for a specific borrower based on their credit history to the cost of funds is a way for banks to adjust for credit risk on a case-by-case basis. This allows the bank to charge borrowers with better credit histories a lower interest rate, while charging borrowers with poorer credit histories a higher interest rate. This helps to compensate for the additional risk the bank is taking on with the borrower who has a poorer credit history.

One Way for a Bank to Deal with Credit Risk