What is credit score?

A credit score is defined as a numerical representation of a person’s creditworthiness based on their credit history. This score is an important financial metric that lenders use to evaluate the potential risk of lending money to individuals. It reflects how reliably a person has repaid borrowed funds in the past, taking into account factors such as payment history, amounts owed, length of credit history, types of credit used, and recent credit inquiries.

This credit score allows lenders to assess how likely a borrower is to repay a new loan, making it a critical component in the loan approval process and determining the terms of credit, such as interest rates. Understanding credit scores is essential for managing personal finance effectively, as a higher score typically leads to lower interest rates and better loan terms.