A credit score is a numerical representation of an individual's creditworthiness. It is a measure used by lenders to assess the risk of extending credit to a borrower. Credit scores are typically generated by credit bureaus or scoring models, taking into account various factors such as payment history, credit utilization, length of credit history, types of credit used, and recent credit inquiries. The most commonly used credit scoring system is the FICO score, which ranges from 300 to 850, with higher scores indicating a lower credit risk and more favorable terms for borrowing.
Excellent answer! Just to add on, a credit score is used by lenders to determine the likelihood that a borrower will repay their debts on time. It is also used by other entities, such as landlords and insurance companies, to assess a person's financial responsibility and reliability. A higher credit score indicates that the individual has a good credit history and is more likely to repay their debts, which can result in better interest rates and loan terms. Conversely, a lower credit score suggests a higher risk of defaulting on payments. It is important to maintain a good credit score to have access to affordable credit options and financial opportunities.