What is the purpose of credit scoring?

The purpose of credit scoring is primarily to predict the creditworthiness of an applicant. Credit scoring systems assess various factors, such as payment history, credit utilization, length of credit history, types of credit used, and new credit inquiries. By analyzing these data points, the score provides lenders with a quantifiable measure of the likelihood that an individual will repay borrowed funds. This tool is crucial for lenders, as it helps them make informed decisions about approving loans, setting credit limits, and establishing terms.

In this context, determining a person's income level is not a function of credit scoring. While income may be considered in broader financial assessments, it does not directly influence the credit score itself. Assessing the risk of fraud focuses on different criteria and mechanisms, such as transaction patterns and anomalies, rather than on creditworthiness alone. Evaluating loan interest rates can occur based on a person's credit score, but it is not the primary purpose of the score itself; rather, interest rates are determined as a subsequent step based on the risk indicated by the score. Thus, the focus is sharpen on the role of credit scoring in assessing creditworthiness, making the selection of that answer the most precise and relevant.