What is a credit policy?

A credit policy is fundamentally a set of guidelines for assessing risk before issuing credit cards. This encompasses the standards and criteria that an organization uses to determine whether a potential customer qualifies for credit and under what terms. The credit policy typically includes factors like credit scores, income verification, credit history, and other financial assessments that help gauge the likelihood that the borrower will repay any amounts owed.

By establishing a well-defined credit policy, financial institutions and credit card issuers can mitigate their risk exposure and make more informed decisions regarding credit issuance. This process is crucial for maintaining financial stability and ensuring that customer loans are extended responsibly. Thus, the answer accurately reflects the core purpose of a credit policy in the context of issuing credit cards.