Why might a lender rely on credit scoring?

A lender may rely on credit scoring primarily to measure the applicant's risk of default. Credit scoring systems aggregate various financial behaviors and indicators — such as payment history, credit utilization, the length of credit history, and types of credit used — to calculate a numerical score that reflects the likelihood of a borrower repaying a loan. This score provides lenders with a standardized method to evaluate potential borrowers, enabling them to make informed lending decisions based on assessed risk. By identifying applicants who might be more likely to default based on historical data, lenders can tailor their offerings and ensure they are minimizing potential losses. This risk measurement supports the overall strategy of responsible lending and sound financial management.